Jamie Jemmeson
November 24, 2021

Sterling Remains Vulnerable despite Upside in Data

The Sterling failed to make headway amidst ongoing concerns surrounding COVID-19 and interest rate hesitation. Data was overall more positive as the UK Purchasing Managers’ Index (PMI) edged higher to a 3-month high above consensus forecasts. The services-sector index declined marginally in line with expectations.

Monetary Policy Committee (MPC) member Haskel stated that a gradual increase in interest rates would represent a return to normal. However, he still expressed reservations over an early move to hike rates. He added that labour-market developments would be very important and that the Bank needs to be vigilant about rising labour costs.

Bank of England (BoE) Governor Bailey also commented that the labour market is very tight and warned that the Bank may not give significant forward guidance in the future.

The Confederation of British Industry (CBI) Industrial Trends Survey for November is one of the main releases this morning, which will be watched for the latest indications of economic activity and prices. The CBI Survey has signalled significant upward price pressures this year. Meanwhile, BoE’s Tenreyro is scheduled to speak – she is considered to be one of the most dovish MPC members so her comments will be closely watched ahead of the meeting in December.

COVID-19 Restrictions Continue to Weigh on Single Currency

Economic activity surprised to the upside with the release of the purchasing, manufacturing, and service sector data. The French PMI business confidence data was stronger than expected for November and the German data also beat expectations with the composite output index strengthening. The Eurozone PMI manufacturing index edged higher and posted above expectations. The services sector also confounded expectations with a net gain to a 3-month high. However, the single currency remains fragile amidst changing COVID-19 restrictions and lagging interest rate policy.

European Central Bank (ECB) Council member Knot stated that current supply-side shocks may not be temporary and that the Central Bank is likely to stop emergency bond purchases in March 2022.

The German IFO business surveys for November are the main releases this morning, which will be watched for the latest indications of economic activity and prices. The German IFO survey is expected to fall weighed by sharply rising COVID-19 cases and political uncertainty.

Market to Watch Federal Open Market Committee (FOMC) Minutes for a more Hawkish Bias

The US calendar remains crammed with data ahead of tomorrow’s Thanksgiving Holidays. The US PMI data was mixed as the manufacturing index strengthened to a 2-month, but the services-sector component dipped to a 2-month low with the supply-side and shortages being quoted as being problematic.

Inflation continues to be evident as manufacturing costs increased at the strongest rate since the survey began the increase in service-sector prices. It was also the highest on record as companies looked to pass on cost increases. The data will maintain concerns surrounding inflation pressures in the economy with further pressure for the Federal Reserve (Fed) to tighten policy at a faster rate with markets continuing to watch comments from central bankers.

There is a flurry of economic releases today with Growth Domestic Product (GDP), durable goods, new home sales, and consumer confidence readings all set for release. The minutes of the Fed’s November policy meeting will be watched for signs of a slightly more hawkish tilt, given the upside seen in the data releases more recently.

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