Currency Note

Sterling wavering as economic data proves inconclusive

By Alex Bennett December 14th, 2021

Sterling strengthened briefly against the euro yesterday morning but returned to Friday’s level by the end of the day.

The direction of travel was mainly downwards for GBP/USD and the pound was roughly 0.5% down on the day.

It’s an exceptionally busy week for data, and the first release with the power to move the market was unemployment this morning. It rose slightly ahead of expectations to 4.2% in October, but so did job vacancies, despite the end of the furlough scheme. Average earnings, however, were also fractionally ahead of expectations, rising at 4.3%.

Tomorrow we’ll see inflation (will it follow the US, where inflation rose to 6.8%, a 39-year high?) and then the interest rate decision on Thursday.

In the business news, a survey by the Institute of Directors (IoD) of British companies that make imports from the EU has found that a third of them are “not at all prepared” for the full system of post-Brexit customs checks, which comes into place at the end of the year. “This will exacerbate existing supply chain problems, leading to further congestion at ports, as well as extra costs from accidental non-compliance for many businesses” said the IoD’s chief economist.

In politics, Parliament will vote today on new ‘Plan B’ measures to tackle the Omicron variant of Covid-19, with a large-scale rebellion against the government from its own MPs likely. However, with Labour MPs supporting the measures they will be passed.

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GBP: Pound looks for direction

Sterling remains finely balanced this morning, having strengthened very marginally in the past 24 hours against NZD, CAD and USD, but slipped against NOK, SEK and the euro.

These are tight margins, however, after a week of small falls, all under 0.5%, against our main currency rivals over the past week.

It’s a hectic week for data, and so far the picture is mixed, with unemployment levels rising in October, but less than could be feared with the furlough scheme ending the month before.

Wages are rising at nearly 5%, but this could be seen as fuelling inflation.

GBP/USD past year

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EUR: Euro suffers on risks of Omicron

The single currency flip-flopped against both GBP and USD yesterday but remains stronger on the week against all major currencies.

Problems for the euro include the opposing strategies from the European Central Bank (ECB) and the Federal Reserve in the US on interest rates, with the ECB adopting a considerably more dovish stance (meaning less likely to raise interest rates in response to inflation).

Omicron is also a severe worry for the eurozone, with a lower rate of booster vaccinations in its major economies.

On the monetary policy issue we’ll be getting final inflation figures for November tomorrow from France, Spain and Italy.

Of more interest on the economic front is the first reading for Markit PMI across the eurozone and its major economies tomorrow.

USD: Dollar on the rise as Fed ponders on rates

The dollar remains strong, on the promise of a tightening of monetary policy as the Fed looks to control inflation.

Indeed, the dollar’s success has now stretched to the full year, as it reaches 3% up against the pound compare to last December, 8% up on the euro and over 10% stronger against JPY and SEK.

This week’s data includes retail sales for the crucial November period which includes Black Friday, tomorrow. This will be followed at 8pm (UK time) with the Fed’s interest rate decision.

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