Sterling moves lower at the start of the week as concerns about the economy remain. BoE Monetary Policy Committee member Tenreyro stated that there is little the Bank can do to affect some short-term inflation drivers with inflation likely to increase further over the next few months. She added that domestic cost pressures (inflation) will be dependent on how the labour market situation evolves with the need for furlough. Tenreyo’s tone suggested that she would prefer to take time to assess the overall picture of the economy given the recent developments before raising rates. She joins at least two further members that have suggested that a ‘wait and see’ approach may be more favourable. That said, the probability of a hike next week is still at 62%.
Sterling was further weighed down by ongoing Brexit brinkmanship as Brexit Minister Frost stated that EU proposals do not go far enough. Overnight, reports suggest that the national living wage will be raised by 6.6% in Wednesday’s Budget, taking it to £9.50 an hour for workers aged 23 and over, and that the pay freeze on public sector staff will be ended.
The only economic release is the UK Confederation of British Industry (CBI) retail report which will provide one of the first indications for consumer spending in October. This survey has been particularly volatile of late significantly on the upside in August before dropping by much more than expected in September.
US Markets Look to GDP Data for Signs of Pickup in Momentum
The dollar remained relatively well supported across most majors yesterday with a quiet day on the economic calendar. Focus this week will turn to Gross Domestic Product (GDP) data as investors look for signs of a pickup in activity following a sharp drop due to the Delta variant and supply chain bottlenecks hitting businesses. Activity is already showing signs of picking up, with economic data in the form of retail sales and wage data suggesting momentum began to accelerate in September. Following a series of hawkish comments from a Federal Reserve (Fed) speaker last week, expectations of a firmer Q3 GDP print would support the Federal Reserve tapering in November.
Looking ahead to the calendar today, interest will turn to September’s new home sales and the Richmond Fed’s manufacturing index for October.
Market Continues European Central Bank Speculation
Following a relatively quiet start to the week for the Eurozone, focus remains strongly on the European Central Bank (ECB) meeting on Thursday. The ECB President, Christine Lagarde, is expected to squash the growing opinion that the central bank might be looking to raise interest rates next year despite inflation exceeding the 2% target in September (reading 3.4%) and forecast to reach a 13-year high of 3.7% in October. Expectations are for the ECB to keep rates unchanged on Thursday but naturally investors will be far more interested in the associated press conference for any forward guidance on policy adjustments in (possibly) late 2022. Looking ahead at today, it’s a relatively baron macro-calendar across the board with no notable European releases providing direction for the Euro.
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