Jamie Jemmeson
December 2, 2021

Uncertainty Continues to Hinder the Sterling

The Sterling regains territory on stronger global risk conditions, although there is little evidence of it continuing. The UK market is uneasy over the developments of the Omicron variant, given that the UK is known as a travel hub. This level of uncertainty has added to further doubts as to whether the Bank of England (BoE) would push ahead with a near-term interest rate hike on 16 December.

Nationwide reported a 0.9% increase in UK house prices for November with the recent annual increase from 9.9% to 10.0%. The UK Manufacturing Purchasing Managers’ Index (PMI) was revised marginally lower to 58.1 from the flash reading of 58.2 as supply-side issues remain a key element.

There are no scheduled BoE speakers today. The next one up is Michael Saunders tomorrow. He is one of the policymakers who voted for a rate rise in November, so (given the increased uncertainty) it will be interesting to hear his comments. There are also “rumours” saying that the US is (perhaps) delaying a trade deal with the UK due to Brexit concerns hampering sentiment.

The US Dollar Remains Well Supported following better than Expected Manufacturing Data

The US Dollar remained well supported on Wednesday as markets balanced their concerns over the Omicron variant with hawkish comments from the Federal Reserve (Fed). Fed Chairman Jerome Powell reiterated in congress that policymakers will discuss accelerating the pace of tapering its asset purchase programme when they next meet on 15 December. The ISM Manufacturing PMI edged higher to 61.1 in November, up from 60.8 in October. The reading indicates an expansion in the manufacturing sector and a market consensus of 61.0. November’s ADP jobs data was released in line with market expectations and helped to keep the dollar supported later in the session.

Elsewhere, investors are set for commodity currencies to come under pressure today as members of the Organisation of Petroleum Exporting Countries (OPEC) meet to decide on whether to go ahead with a planned output hike in January.

Looking ahead to today, markets will review the weekly initial jobless claims data ahead of Friday’s jobs report.

Manufacturing Steadies but Supply Chains Remain a Great Concern

The Eurozone manufacturing sector steadied in November amid continuous supply-chain disruptions. The IHS Markit PMI increased from 58.3 in October to 58.4 in November demonstrating the first increase in the headline index since June. Despite a stronger headline reading, the increasing concern for the Eurozone economy is that supply chains continue to deteriorate at a very worrying rate. Elsewhere, German retail sales fell by 0.3% in October against forecasted growth of 1%.

Looking ahead to today, we look forward to the release of the European unemployment rate data. The forecast is that the unemployment rate in the bloc will fall to 7.3% versus a previous reading of 7.4%.

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