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Sam Jones
November 10, 2021

Attention Turns to Economic Data as Markets Speculate on Bank of England’s (BoE) December Rate Hike

Sterling Takes Further Blow Following BoE’s Governor Bailey’s Speech

It was back to familiar territory as narrow trading ranges were recorded from Sterling against the major currency pairs yesterday. The drivers behind these movements remain delicate, as it struggles to recover losses over the year due to the threat of Brexit turmoil.

Pressure is increasing for the British government to suspend parts of the Northern Ireland Protocol with commentators stating that the EU (European Union) would, in this case, have no choice but to retaliate.

After the surprise rate hold last week, and muted announcements from the BoE yesterday, traders are awaiting new data on which to base their decisions. Rate hikes are still expected in December, however, in a time of COVID-19 and Brexit turmoil, a shock like the one seen last week is an area of caution for those participating in the market.

European Central Bank (ECB) – 2022 Rate Hike Unlikely

The European ZEW investor confidence index read greater than forecast yesterday, strengthening to 25.9 from the previous reading of 21.0 and a consensus forecast of 20.6. The German ZEW index also read above forecast at 31.7 versus a consensus of 20.3 and a previous reading of 22.3 showing a growing level of optimism in the European powerhouse. German trade balance read slightly below expectations with exports declining 0.7% for September, however, the Euro remained relatively unchanged as a direct result.

ECB member Klaas Knot commented that conditions for a rate hike are very unlikely to be met in 2022 despite higher energy prices and supply bottlenecks lasting longer than expected. He further noted that Eurozone inflation is likely to fall below 2% towards the end of 2022 but the Central Bank should prepare for upside scenarios.

Looking ahead to today, it is a very quiet day for Eurozone data with no notable releases.

Markets to View Inflation Figures for further Guidance on Federal Reserve’s (Fed) Monetary Policy

The US Dollar traded in narrow ranges against most major currencies yesterday as investors look to the release of key inflation data today. Consensus forecasts for October’s Consumer Price Index (CPI) point to an annual increase of 5.8%. The Fed has regularly cited core inflation and unemployment levels as key indicators driving the pace of tapering and lifting of interest rates. A reading above consensus will increase the pressure on Fed Chair Jerome Powell to update markets as to the timing of any rate hikes in 2022.

Ahead of the release of Inflation figures, markets will review the release of October’s initial jobless claims data.

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