After a relatively robust week last week, the pound started this morning’s session on the back foot following comments from Governor Bailey over the weekend. Speaking to the Sunday Times, Governor Bailey stated that the current inflationary backdrop remains driven by supply-side factors, to which monetary policy is a blunt tool. His comments may continue to weigh on interest rate expectations, but they won’t come as anything new for those paying close attention to the BoE communications. In our view, the drag on the pound has come from EURUSD, with traders unwilling to let GBPEUR take another leg higher amid the current backdrop. Today, the data calendar is light for the pound, with focus on November’s flash PMIs at 09:30 GMT and BoE policymaker Haskel speaking on ‘high inflation now and then’ at 11:00 GMT.
The single currency remains in what can only be described as freefall against the dollar and other G10 currencies this morning following last week’s slump. While the downturn in EURUSD can be attributed to widening policy differentials as well as the growth shock in the eurozone, the euro’s drop against G10 counterparts can be viewed in isolation as a by-product of the recent lockdown measures being implemented within the bloc. With concerns elevated over growth momentum in the eurozone amid the brewing fourth wave, focus this week will be on flash eurozone PMIs for November on Tuesday. For now, however, markets await news from Germany and France about how they will counter the latest rise in Covid cases.
The dollar opens Thanksgiving week in a mixed fashion this morning, taking further ground against EUR and JPY, while trimming gains against high beta currencies at the margin. The focus for the dollar remains on policy expectations, with comments from Fed members’ Waller and Clarida on Friday suggesting a higher appetite for a faster QE taper, while headlines over the weekend remained centred on the release of Strategic Petroleum Reserves. With a limited number of Fed speakers pencilled in for the week, markets will have to turn their attention to the FOMC meeting minutes on Wednesday to help build out the expected normalisation timeline.
The Canadian dollar remains little impacted by the decline in oil markets over the past 36 trading hours, with oil hovering around $76 per barrel following the news that Japan may join the US and China in tapping their petroleum reserves in order to lower energy costs. This week, the data calendar is light for the loonie, with BoC Deputy Governor Beaudry’s speech on risks to the stability of the Canadian financial system on Tuesday at 18:00 GMT the standout economic event.