Jamie Jemmeson
November 25, 2021

Sterling Remains Under Pressure despite Positive Industrial Trends

The Sterling remained steady following the positive data reading yesterday and rhetoric from Monetary Policy Committee (MPC) member Tenreyro. The Confederation of British Industry’s (CBI) industrial trends index strengthened to 26 in November from 9 the previous month above consensus forecasts of 18. It is currently the strongest reading since 1977. In the meantime, Tenreyro (one of the more cautious members of the MPC) stated that interest rates are likely to increase in the medium term but declined to give specifics on the potential timing. There are reservations surrounding Brexit developments with the two sides still seeing substantial differences over the Northern Ireland Protocol.

It is a quiet day for the economic data since it is Thanksgiving in the US today. BoE Governor Andrew Bailey is due to speak at a moderated discussion with Mohamed El-Erian at the Cambridge Union. MPC member Haskell is also due to deliver opening remarks at the BoE’s workshop on productivity and structural change. The markets will keep a close eye on the rhetoric for clues on future policy ahead of the interest rate meeting in December.

US Dollar Continues to Gather Strength after a Hawkish Tone from the Federal Reserve (Fed)

The US Fed signalled a hawkish tone yesterday which helped the US Dollar remain well supported against several major currencies. The dollar index continued to trade above 96.00 reaching highs against the Euro (not seen) since June 2020. The latest Fed policy meeting minutes released overnight showed a growing number of policymakers lean towards accelerating the pace of asset purchases and raising US interest rates sooner in 2022, should inflation become more persistent. Personal Consumption Expenditures (PCE) data released yesterday confirmed that US inflation continues to rise heading into Q4 of 2021. The figure rose to 4.1% on a yearly basis. Following the release, the 10-year US Treasury bond yield moved higher and above 1.7%. Meanwhile, weekly unemployment claims fell to the lowest level since 1969, with Q3’s Growth Domestic Product (GDP) data revising upwards to 2.1%.

Elsewhere, San Francisco Fed president Mary Daly commented that she sees a strong case for accelerating the pace of tapering the Fed’s bond-buying programme.

US markets are closed today for the Thanksgiving public holiday.

German Businesses’ Confidence Slides

The German IFO business confidence index declined marginally below consensus forecasts. There is a limited decline in the current conditions index with a similar drop in the expectations index. The IFO commented that supply chain bottlenecks are placing companies under a lot of stress. There is a scope that this figure will drop further as COVID-19 restrictions start to come into effect and conditions continue to worsen.

Looking to the day ahead, there will be interest in what European Central Bank (ECB) President Lagarde will say as she is due to deliver opening remarks at the ECB Legal Conference 2021. The markets will focus on whether she stays consistent with her messaging on monetary policy.

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