IFX Market Report: Monday 4th October 2021

Sterling was able to claw back some of its losses on Friday as improved market conditions allowed the currency to strengthen. With market sentiment becoming increasingly risk-on, Cable spiked by over 0.8% in session, seeing the pair rise from 1.34 to above 1.3550. US Treasury bond yields also fell for a second consecutive session and the US Dollar Index (DXY) closed at a disappointing 94.07. Despite this, recent US data has been “fairly positive”. Upbeat readings on Friday from the manufacturing sector show that US factory activity is expanding successfully. ISM Manufacturing PMI trumped its previous of 59.9 by coming out this month at 61.1. September’s Markit Manufacturing PMI beat forecast by 0.2 coming in at 60.7. Michigan Consumer Sentiment also beat expectations, giving an actual reading of 72.8.

GBPUSD opened the day Friday at a subtle 1.3453. But favourable market conditions and a weaker Dollar forced the pair higher. Cable finally closed the week at an impressive 1.3568.

Surging energy prices and 13-year high Eurozone inflation dampened the enthusiasm of Euro bulls, enabling GBPEUR to make upside moves. The pair started Friday’s session trading at 1.1609 and quickly improved, closing the day at 1.1700.

Investors are becoming increasingly concerned about inflation in the Eurozone. Analysts argue that the surge in “headline inflation is still mainly driven by so-called one-off factors such as higher energy prices, the German VAT reversal or price mark-ups post-lockdown in the leisure and hospitality services”. With inflation appearing to spiral out of control, many are calling on Christine Lagarde to act. This week’s speech from the ECB President “signalled a changed stance on inflation compared with a few months ago: a shift from a very benign assessment to one of more alertness and awareness that inflationary pressure might be less short-lived than initially thought”.

With both the Euro and Dollar at a disadvantage on Friday, EURUSD had a less than lively session. The pair opened at 1.1588 and closed the week at 1.1596.

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