IFX Market Report: Friday 29th October 2021

The Dollar suffered another day of losses on Thursday, falling even further against Sterling and the Euro. The Euro performed impressively in spite of a dovish message from Christine Lagarde and the European Central Bank. The ECB decided to keep interest rates and its monetary policy stance unchanged despite soaring EU inflation. Lagarde “tried to play down the chances of a rate hike in 2022” but “some market participants believe the ECB is underestimating current inflationary pressures and will therefore likely have to announce a rate hike before the start of 2022”. This is clearly what investors think also, with money markets have already “priced in the probability of a 20-basis point hike for December 2022”.

The central bank also announced that it would be buying fewer bonds as a result of surging consumer prices. Despite inflation hitting at 13-year high of 3.4% in September, Lagarde is adamant “that higher inflation is temporary and will fade throughout 2022”. Thus, the ECB President was clear that this move is “a recalibration, but not tapering”. The general consensus amongst investors is that Lagarde will “announce a formal tapering in December”. Given that the central bank’s Pandemic Emergency Purchase Program is due to end in early March next year, “many analysts are expecting a readjustment in the bank’s stimulus ahead of that”.

Sterling was able to gain momentum on Thursday off the back of Rishi Sunak’s “upbeat” Budget. GBPUSD opened the day at 1.3758 and managed to reclaim the 1.38 handle, closing the day at 1.3802.

GBPEUR in contrast made a loss on Thursday. The pair opened at 1.1851 and closed the session at 1.1813.

EURUSD gained solid momentum yesterday – pushing closer to 1.17 toward the end of the session. The pair opened at 1.1609 and closed at 1.1684.

On the data front, Q3 GDP from Germany and the Eurozone will be published this morning. In the afternoon, US PCE Index and Michigan Consumer Sentiment is due to be released.

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