The Sterling continued its recovery from its fall from grace as data continues to reinforce the strong probability for a rate hike next month with the GBP Sterling – EUR Euro hitting fresh 20-month highs. Yesterday, the inflation reading printed a (higher-than-expected) reading breaching the 4% level. This is the strongest reading since 2012. The increase primarily reflected higher energy prices after the Office of Gas and Electricity Markets (Ofgem) raised its price cap, but core inflation. Inflation is set to remain elevated and probably move even higher in the near term with the Bank of England (BoE) forecasting a peak of around 5% in April next year. However, BoE and Monetary Policy (MPC) member Mann stated that short-term inflation expectations were lagging, and she was confident that the Bank will bring inflation back to the 2% target. She added that goods inflation was expected to moderate during 2022 as supply difficulties ease.
In the meantime, positive sentiment surrounding the ongoing Northern Ireland Brexit tensions has materialised as Brexit Minister Frost stated that a deal with the EU could be achieved before Christmas.
Economic data is quiet today for the UK. Markets will continue to monitor comments from the officials of the BoE (in the short term) as the latest retail sales data gets released tomorrow morning.
US Dollar Loses Momentum following Weaker than Expected Housing Data
The US Dollar ended lower yesterday against several major currencies following weaker than expected housing data for the month of October. The recent US Dollar momentum was reversed following the release as higher costs for building materials showed to have weighed on the sector. It lost ground against the Sterling, which received a boost following higher than forecasted Consumer Price Index (CPI) Data. The data showed UK inflation rising at its quickest pace for 10 years. Lower risk sentiment continued to support the US Dollar against a broadly weaker Euro, trading at strongest levels since July 2020. Yesterday the United Nations (UN) warned that higher shipping costs resulting from global supply chain pressures will further fuel inflation globally and will disproportionally hit developing nations’ economies.
Looking ahead to today, investors will review weekly initial jobless claims data on an otherwise light economic calendar. Elsewhere, Federal Reserve (Fed) President John Williams is due to speak later in the day.
Single Currency Remains on the Backfoot
The single currency continues to remain on the backfoot as it lags its counterparts in terms of interest rate policy moving forward. The headline Eurozone CPI Inflation Rate was confirmed at 4.1% for October, although there was a slight downward revision to the core rate to 2.0% from 2.1%.
European Central Bank (ECB) Council member Schnabel stated that by continuing to buy bonds, the ECB could signal that a rate hike is not imminent, confirming market expectations. This was further highlighted by the move from the GBP Sterling – EUR Euro, with the single currency falling to its weakest level in 20 months with monetary policy firming in the mind.
To conclude, the economic data is quiet from the region today.
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