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US Inflation Expectations Hit A New High Following A Strong Jobs Report

The US Dollar ended the day weaker yesterday as markets look for the updated consumer inflation data which is set for release on Wednesday. Annual consumer inflation in the US is expected to have reached a decade high of 5.8% in October, increasing pressure on the Federal Reserve (Fed) to raise interest rates sooner. The US Dollar remained well supported against a basket of currencies over the weekend following a strong jobs report on Friday. It was reported that 531,000 jobs were added in October which was above consensus and showed the unemployment rate had fallen to a fresh pandemic low of 4.6%. Later today Fed Chair Jerome Powell is scheduled to speak, investors will look for any suggestions that the Fed may intend to increase the speed of their tapering programme as the economic outlook gathers pace.

On the economic calendar today, October’s Producer Price Index (PPI) data will be monitored ahead of key inflation data due for release tomorrow.

Attention Turns to Bank of England’s (BoE) Governor Following Decision To Leave Rates On Hold

Sterling continued to trade within relatively narrow ranges against most major currencies on Monday, showing a consolidation after the market-moving news from the previous week. This, in part, is due to the positive news about a COVID-19 anti-viral pill being approved for use in the UK and the lack of data releases surrounding the currency. With Governor Andrew Bailey due to speak today, there may be some life breathed into Monday’s docile GBP Sterling and following the decision by members of the BoE to keep rates on hold last week.

While traders focus on Governor Bailey for fresh hints on monetary policy, Brexit concerns persist as the risk of triggering Article 16 keeps a bullish mentality at bay. Brexit and supply chain issues are somewhat offset by the Office for Budget Responsibility’s (OBR) inflation revision to 6%. This indicates the extent of expected change, building further pressure for the BoE to tighten monetary policy. The race to tighten is on and the strength or weakness of Sterling is very much tied to the decision – how long will the BoE hold out?

The economic calendar is quiet today for the UK, with attention turning to Governor Andrew Bailey who is set to speak this afternoon.

Poland Tensions Continue

Tensions between the EU and Poland continue as Poland threatens to withhold their membership fee with the European Union (EU) in conflict over access to a €36 billion pandemic aid. In a time when relations are already tested, Poland warns the EU of a possible armed escalation on their border with Belarus, following incidents with thousands of migrants, reportedly orchestrated by Belarus leaders. A key figure in Poland’s national security department claims the migrants are under the control of the Belarusian army. Without a uniformed response from the EU bloc, tensions could further increase between Poland and the EU with the potential of providing a negative backdrop for the Euro.

Looking ahead, the Eurozone’s macro-calendar is relatively quiet. Euro ZEW Economic Sentiments is due this morning and is expected to read lower than previous at 20.6 (versus 21.0 prior). European Central Bank (ECB) President Lagarde also speaks this morning at the ECB Forum on banking supervision.

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