Sam Jones
September 30, 2021

US Dollar Hits Multi-Month Highs Against Sterling and the Euro as Risk Aversion Continues

UK – Sterling Remains Under Pressure Despite Jump in Q2 GDP

The market continues to take a negative view on the UK with ongoing supply chain issues and bumpy economic data that is being posted resulting in GBP/USD posting its lowest level since January. This was further acknowledged yesterday as Bank of England (BoE) Governor Bailey stated that the UK recovery is uneven, although he also warned that the bank must consider the possibility that supply constraints will have second-round effects. Concerns surrounding stagflation remain heightened which could provide the central bank with further tests.

In terms of data, housing data was missed with mortgage approvals edging lower but lending rebounding from its negative reading. The final reading of Q2 GDP was revised significantly higher jumping 5.5 per cent compared to forecasts of 4.8 per cent.

Looking to the day ahead, economic data is quiet for the UK. The UK furlough scheme comes to an end today, despite protests from hard-hit sectors pleading with the government for another extension.

Eurozone – Single Currency Hits 14-Month Lows Amidst Risk Aversion

The single currency retreated to 14-month lows against the US Dollar yesterday despite the overall data picture continuing to indicate resilience within the region. Eurozone industrial confidence index edged higher and above market expectations while there was a net retreat in services sector confidence. The move lower was largely due to Dollar strength as risk aversion continues to play its part. In the meantime, European Central Bank (ECB) President Lagarde again expressed confidence that the increase in inflation would be transitory.

Set for release today we have the inflationary data from Germany, France and Italy which will be monitored closely following Lagarde’s comments. In addition, Eurozone unemployment data is due for release.

US – Dollar Remains Well Supported Following Federal Reserve Taper Signals

Last week’s tapering signals from the Federal Reserve (Fed) and higher treasury yields continued to keep the dollar well supported on Wednesday. Fed Chair Jerome Powell said at the European central bank forum that supply chain issues could cause inflation to last longer than the Fed had previously thought. The Dollar index is trading near a one-year high amid expectations of a possible interest rate hike in late 2022.

Elsewhere, President Biden remained locked in negotiations with senior Democrats on Wednesday as he seeks key votes to support his spending legislative agenda on infrastructure and investment.

Today, markets will turn attention to the release of final Q2 GDP figures followed by weekly jobless claims data.

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