News & Analysis

GBP

The pound’s bounce on Friday from fresh year-to-date lows has been extended partially in this morning’s early trading, despite headlines over the weekend suggesting Prime Minister Boris Johnson remains under substantial pressure as the Labour Party now creeps ahead in the polls for the first time since the pandemic. This week, the data calendar will prove decisive for both sterling and Bank of England expectations, as labour market data for the 3-months up until the final week of September is released along with retail sales and CPI data for October. The labour market data won’t clearly show the impact the expiry of the Furlough scheme had, however, it could show some preliminary adjustments made by business owners ahead of the end of the month. Any substantial rise in the level of unemployment due to increased redundancies could compound concerns that the Bank will hold a more dovish stance until February’s meeting, while a slump in retail sales will highlight the Bank’s concerns over slowing near-term growth conditions.

EUR

EURUSD has been trading in tight ranges since Friday but remains on the weak side following the wave of USD strength since the US CPI inflation release. In the bloc itself, the near-term growth outlook may also be dampened by renewed Covid restrictions despite the European Commission having upgraded 2021 growth just last week. The Netherlands entered a three-week soft lockdown including time limits on hospitality services and stores, a maximum number of four guests a day and work-from-home mandates. Austria took measures for anyone who is unvaccinated, as starting today you cannot enter a restaurant, hotel, cinema or theatre in the state of Brandenburg unless you have been vaccinated or have recovered from Covid. After the Dutch three-week lockdown, the Netherlands is also considering implementing the “2G” rule which limits access to vaccinated/recovered people only. Pressure on Germany’s health infrastructure is also increasing, and the country now exhibits a heightened state of alert which means more restrictions could be incoming. With near-term growth looking more subdued again following the latest restrictions, markets will be closely monitoring tomorrow’s eurozone Q3 GDP release at 10:00 GMT. Today’s focus will be on ECB speakers Lagarde, de Cos and Guindos at 10:00, 13:05 and 15:45 GMT.

USD

After a quiet session on Friday, the dollar is moderately softer amid improved market mood ahead of the Biden-Xi virtual meeting today, although the currency remains strong based on weekly ranges as market bets for an FOMC rate hike have become even more aggressive after last week’s US CPI release. Fears over inflation being less “transitory” than relayed by the Fed has ignited these market bets as the report showed inflationary pressures are more broad-based than before, raising concerns that it will take longer for pressures to fade. Over the weekend, Minneapolis Fed President Neel Kashkari said in an interview with CBS News that he saw price pressures easing in H2 2022, despite the hot inflation data from last week. Today, Xi Jinping and Joe Biden will go into their virtual summit, where Taiwan and China’s economic practices are set to be discussed, potentially along with a lifting of US tariffs. In terms of data, Wednesday’s retail sales and export price index data from the US could provide additional information into the US inflation outlook, however today’s calendar looks sparse.

CAD

The loonie is crawling back against the dollar after Friday’s 1-month high in USDCAD, as moves in Treasury markets meant the dollar is trading softer this morning. The rally in CAD comes despite crude oil prices having fallen slightly after US President Joe Biden faced even more calls to tap the Strategic Petroleum Reserve in an attempt to tackle the elevated gas prices and push back against inflation expectations. The call came from Senate Majority Leader Charles Schumer who stated consumers need immediate relief at the gas pump. Brent has been trading below $82/b for most of the European morning while WTI is holding up just above $80/b. Wholesale and manufacturing sales figures for September are due at 13:30 GMT today, although most focus will be on the broader macro flow and risk sentiment.

 

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