Volatility calms ahead of key data

Lawrence Kaplin
Lawrence Kaplin 10 December 2021

GBP: Steadier

EUR: ECB considering boosting stimulus

USD: Inflation data in focus

 

Sterling

Sterling enjoyed a better day yesterday as a sense of calm returned to markets in general. The broad sell-off for the pound over recent trading sessions abated as markets now look to today’s key US inflation data and next week’s all-important Bank of England rate setting meeting for further direction. The recent tightening of Covid restrictions have further decreased the probability the bank will raise rates to 40%. Despite the recent adjustment, this still seems too high when you consider MPC member Saunders, who was one of only two MPC members to vote for hike at the November meeting, has recently gone on record saying he is unsure as to how he will vote this time around.

Economic data released this morning has come in weaker than forecast with GDP for October showing a rise of 0.1% versus expectations of an increase of 0.4%, along with manufacturing and industrial production also lower than estimates.

 

Euro

The single currency had another largely uneventful trading session with currency markets more focussed on events elsewhere. Reports circulating that the ECB may announce yet another economic stimulus package at next week’s ECB meeting helped keep the euro trading close to recent lows. With Covid related cases increasing across Europe at an alarming rate, markets continue to be wary of a further tightening of the current restrictions which is already very onerous in some member states.

German inflation data out this morning came out in line with forecasts, showing an annual rate of 5.2%. ECB President Lagarde is due to speak later this morning.

 

US dollar

The dollar continues to trade close to its highs for the year as markets hastily bring forward their timing for the first rise in US interest rates. Recent economic data continues to show the US economy is firing on all cylinders and inflation running at a 30 year high. Yesterday’s weekly employment numbers came in at the lowest since 1969.

Further confirmation of higher inflation is expected from today’s report where the rate is expected to rise further to an annualised rate of 6.8%. In what markets took as a warning ahead of the release, US President Joe Biden, bracing for another jump in inflation, sought to reassure Americans on Thursday that rises in energy costs and other key goods were starting to ease, but said the change might not be reflected in November data due today.

 

Market rates

Today's Interbank Rates at 08:00am against sterling movement vs yesterday.

Euro €1.170 
US dollar $1.321 ↓
Australian dollar $1.846 ↓
South African R21.18 ↑
Japanese yen ¥150.0 ↓

 

Have a great day and a better weekend.