Currency Note

Rishi Sunak urged to manage EU relations following Brexit

By Sharyh Murray-Francis November 21st, 2022

The prime minister is expected to face pressure from business to lighten the economic load brought on by Brexit.

After welcoming the chancellor’s new fiscal plans last Thursday, sterling begins the week marginally up against the US dollar compared to this time last Monday. The pound is also much stronger than the euro.

Rishi Sunak will deliver a speech on innovation at the CBI employers annual conference in Birmingham today. The prime minister is expected to face pressure from business to lighten the economic load brought on by Brexit. This includes opening Britain’s doors to more immigration to fill significant gaps in the UK’s labour market.

A quiet week ahead for key data releases in the UK however, markets will be expecting the S&P Global/CIPS UK Manufacturing PMI (flash) for November. In the last data, the manufacturing purchasing managers’ index was revised slightly higher to 46.2, pointing to the steepest pace of contraction in the sector since May 2020. Markets have forecast that number to contract again in Wednesday’s data release.

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In the eurozone, Markets have just seen Germany’s month-over-month PPI data. The index decreased to -4.20%, much lower than market forecasts of 1.1%.

While on Thursday, Germany’s IFO business climate will be out. This will give an indication of how entrepreneurs’ sentiments about current business situation in Germany, as well as their expectations for the next 6 months.

Over in the US, Markets will be anticipating a variety of data releases from the US, including durable goods and new home sales.

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GBP: BoE faces growing concerns over high inflation

At 10:05 this morning, the Bank of England’s deputy governor for financial stability, Sir Jon Cunliffe will speak on interest rates. The Bank recently raised UK interest to 3% in its November meeting, which was the largest hike in 33 years. The hike also increased borrowing costs to the highest level since late-2008.

BoE Policymakers voiced concerns about increasingly high inflation in the November meeting due to the rate’s rise back to a 40-year high in September. This is against a backdrop of a weakening economic outlook.

GBP/USD over the past year

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EUR: ECB commits to bringing down medium-term inflation

Yesterday evening the European Central Bank (ECB) President Christine Lagarde’s speech triggered the euro to rebound against the US dollar as she promised to bring down inflation to 2%. Lagarde said the central bank is committed to bringing down medium-term inflation to 2%, however this will be done in a timely manner by increasing interest rates.

Lagarde also added that a recession is unlikely to bring down inflation significantly.

USD: Markets predict a fall in durable goods orders

The dollar has strengthened this morning in the wake of COVID worries growing in China. While China’s yuan slipped due to higher cases and tightening restrictions, investors have turned to the dollar for safe-haven buying.

Despite these new gains, the dollar index is on track for its worst monthly performance since July 2020.

On Wednesday, markets will see the latest data on durable goods orders. The data will provide an insight into the number of new orders placed with manufacturers for delivery of hard goods (which meant to last at least three years).

New orders rose 0.4% month-over-month in September, following an upwardly revised 0.2% gain in August, and beating market expectations for a 0.2% advance.

This week, the numbers are predicted to edge slightly lower to 0.3%.

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