CAPITALDIGEST MARKET REVIEW. 22 NOVEMBER 2021

MONDAY 15/11/2021 – FOREX-DOLLAR EASES FROM 16-MTH HIGH AS TRADERS SEEK CLUES ON FED RATE PLANS The dollar eased on Monday from an almost 16-month high versus major peers, as traders awaited fresh clues on Federal Reserve interest rate hike plans on the back of red-hot inflation. The dollar had been buoyant since Wednesday, when data showed U.S. consumer prices rose last month at the fastest annual pace since 1990, casting doubts on the Fed’s view that price pressure will be transitory. Money markets are pricing a first rate increase by July next year. By 0845 GMT, the dollar index – which measures the currency against six peers – flattened at 95.146, after touching its highest level since July 2020 on Friday. Investors will be watching any comments coming out of a virtual summit between President Joe Biden and Chinese leader Xi Jinping later on Monday. In terms of economic data, the main event on the U.S. calendar will be Tuesday’s retail sales data, particularly after a survey on Friday showed consumer confidence unexpectedly plunged to a decade low in early November as high inflation hit sentiment. “It will be important to watch what still cashed-up U.S. consumers do rather than what they say,” Ray Attrill, head of FX strategy at National Australia Bank, told clients.   TUESDAY 16/11/2021 – STERLING RISES AFTER UK JOBS RISE EASES BOE’S WORRIES The pound rose on Tuesday as traders bet some of the Bank of England’s concerns about the risks of raising interest rates could soften, after data showed British employers hired more people in October after a job-protecting furlough scheme ended. Fears of a slowdown in the job market, following the end of the furlough scheme on Sept. 30, prompted the BoE to surprise the market and keep rates on hold at its latest meeting, when sterling had its deepest fall versus the dollar in 14 months. Sterling rose 0.5% versus the euro after data showed the number of staff on businesses’ payrolls in Britain rose by 160,000 in October versus the month before to 29.3 million, 0.8% higher than in February 2020 before the pandemic hit, based on data from tax authorities. “Tuesday’s robust employment data may now renew confidence in an imminent hike by the Bank of England,” said Joe Tuckey, FX analyst at Argentex. There is “cautious optimism that sterling may finally receive some much-needed uplift,” he added. At 1545 GMT, the pound was 0.3% higher against the single currency at 84.50 pence. Versus a strengthening dollar, the pound was up 0.1% at $1.3426, erasing some of its earlier gains after data showed U.S. retail sales increased more than expected in October.   WEDNESDAY 17/11/2021 – DOLLAR TAKES A BREATHER, EDGES BACK FROM 16-MONTH PEAK The dollar edged back from a 16-month high on Thursday as traders assessed whether the U.S. currency’s recent surge, fueled by diverging central bank tightening expectations amid surging inflation around the globe, had gone too far. The dollar index, which measures the currency against a basket of six rivals, reached its highest since mid-July 2020 on Wednesday at 96.226, but was last down 0.272% at 95.553. “We’ve had a really big move in the dollar in the past couple of weeks, and I think that we’re taking a breather now,” said Erik Nelson, a currency strategist at Wells Fargo Securities. Recent U.S. data showed inflation in October running at its hottest since 1990, while retail sales numbers topped forecasts, leading the market to price in earlier rate hikes by the Federal Reserve than had been anticipated, driving strength in the greenback. “The dollar has had a full rally and now the market is going to step back and assess if indeed the inflation theme continues at the pace that everybody thinks it will,” said Boris Schlossberg, managing director of FX strategy at BK Asset Management. “If that’s true, then there’s nothing stopping it, but I think if the numbers start to print a little cooler as we go forward, you’ll definitely see a bit of a dollar pullback across the board.” The euro rose 0.45% to $1.13695, bouncing off of a 16-month low hit on Wednesday below $1.13. Sterling edged up 0.1% versus the greenback to $1.3494, having jumped 0.5% on Wednesday after data showing rising inflation in Britain last month piled pressure on the Bank of England to hike interest rates at its meeting next month. The New Zealand dollar rose 0.55% to $0.7036 after a central bank survey showed near-term inflation is expected to rise.   THURSDAY 18/11/2021 – STERLING SLIPS FROM RECENT HIGHS AS RATE HIKE RALLY STEADIES The pound slid against the euro and edged down slightly against the dollar on Thursday as traders assessed whether recent gains linked to expectations of a central bank rate hike have gone too far. Sterling had earlier in the day hit a one-week high against the greenback as inflation and encouraging economic data fuelled speculation the Bank of England (BoE) will act first among major global policymakers to raise rates for the first time since the COVID-19 pandemic struck early last year. Those expectations were further bolstered by data on Tuesday showing Britain’s job market had weathered the end of the government’s furlough support scheme, easing a major worry about the risks of tightening monetary policy. Investors remain wary about the timing of any move, however, after the BoE surprised markets earlier this month by keeping rates steady when many had understood the hike was coming. At 1527 GMT sterling had slipped 0.41% versus the euro, against which it had hit a 21-month high on Wednesday after rising 2.4% in the last two weeks. It is now at 84.23 pence. The pound was also down 0.1% against the dollar at $1.3481. While rate hike expectations support the pound for now, analysts at Citi said on Thursday there are longer term concerns for the currency amid wrangling between the European Union and Britain over the Northern Ireland part of the Brexit deal. Relations between Brussels and London have soured in recent weeks after Britain, unhappy with the deal it signed up to in 2020, threatened to trigger an emergency clause known as Article 16, potentially leading to a trade war. Such action could send sterling as low as $1.25, the Citi analysts warned, if the EU imposed tariffs in response.   FRIDAY 19/11/2021 – STERLING RISES VS EURO AMID BOE HIKE BETS, AUSTRIAN LOCKDOWN Sterling rose versus the euro on Friday as economic data fuelled bets the Bank of England will raise interest rates, while the euro weakened with Austria announcing a new COVID-19 lockdown. Sterling was 0.3% higher versus the euro at 84.02 pence at 1540 GMT, and was set for its best week against the single currency since Britain’s first lockdown in March 2020. The euro weakened on Friday as Austria became the first country in western Europe to reimpose a full lockdown this autumn to tackle a new wave of coronavirus infections, and Germany did not rule out doing the same. Supporting sterling, economic data this week – including UK inflation, job and retail sales numbers – bolstered expectations the BoE is ready to raise interest rates, after it surprised the market by keeping them on hold at its November policy meeting. Data showed British retail sales rose by 0.8% last month, a bigger rise than expected. [nL8N2SA1A0] “GBP has taken a lot of ground versus the euro in recent sessions with this week’s UK economic data strengthening the case for a potential rate rise from the BoE as soon as next month,” said Jane Foley, head of FX strategy at Rabobank. “Coincidentally, news of further COVID restrictions in various euro zone countries is weighing on the outlook for growth on the other side of the Channel,” she added. The BoE is expected to become the first major central bank to raise rates since the start of the pandemic in a bid to tackle inflation that hit a 10-year high as household energy bills rocket. Chief economist Huw Pill said, however, that financial markets should not assume the BoE’s first step to tighten policy will be to raise interest rates by 15 basis points to 0.25%. Easing some of the BoE’s concerns about the risks of tightening monetary policy, data showed Britain’s job market withstood the end of the government’s furlough scheme.