IFX Market Report: Friday 22nd October 2021

Sterling opens Friday morning on the backfoot after UK retail sales unexpectedly fell for a fifth consecutive month, adding to signs that “Britain’s economic recovery is losing momentum”. Despite being forecasted to come in at -0.4, September’s retail sales printed an actual figure of -1.3%. This release has “marked the longest period of consecutive monthly falls in the history of this series, which began in 1996”.

Sterling’s strength of late has come from the markets firm expectation that the Bank of England will be hiking interest rates very soon. When governor Andrew Bailey said previously that the Bank may “have to act” over inflation, this prompted markets to price in a 90% chance of a rate hike in November. Adding to the speculation, new chief economist of the BoE, Huw Pill, has warned that UK inflation is likely to hit or surpass 5% by early next year. In an interview with the Financial Times yesterday, Mr Pill said that the central bank would face a “live” decision on whether to raise interest rates and declined to say which way he would cast his vote.

Despite dropping slightly lower on the day, GBPUSD had a rather static session on Thursday. Cable opened the session at 1.3815 and closed at 1.3811.

GBPEUR also made a minor loss yesterday. The pair started the day at 1.1867 and closed at 1.1863.

EURUSD also traded flat on Thursday. The pair opened at 1.1640 and closed at 1.1642.

Looking ahead to today, at 09:30 the UK will release its latest flash PMI’s. The Composite reading is forecasted to come in at 54, with a previous of 54.9. While Manufacturing is expected at 54 and Services at 54.5. This morning Germany and the Eurozone printed mixed results, both showing a decline in Services but an uptick in Manufacturing.

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