IFX Market Report: Wednesday 13th October 2021

Poor economic data from Germany dented the Euro yesterday, allowing both Sterling and the Dollar to capitalize in the session. Germany’s October ZEW Economic Sentiment Index was forecasted at 24, with a previous of 26.5. The actual figure came in at 22.3, suggesting that the level of optimism in the German economy is withering. Also contributing to the Euro’s losses is exceptionally high inflation caused in-part by soaring energy prices. Headline inflation reached 13-year highs last week, printing a figure of 3.4%. Christine Lagarde and the ECB have insisted that “the current increase in inflation was expected to be largely temporary” and the central bank is likely to stick with the current course for monetary policy as “there remained some way to go before the damage to the economy caused by the pandemic was overcome”.

GBPEUR was able to make subtle gains on Tuesday with the pair opening at 1.1761 and closing at 1.1788.

Given the current divergence in monetary policy between the Fed and ECB, “the Euro may continue to underperform against its US counterpart” as the Fed moves towards “a tentative exit strategy in tapering its purchases of Treasury securities and mortgage-backed securities”. Safely below the 1.16 handle, EURUSD opened yesterday at 1.1568 and dropped further by the close, finishing at 1.1540.

GBPUSD had a rather uneventful session – closing only 2 pips below where it started. Cable opened the day at 1.3606 and closed at 1.3604.

It’s another busy economic calendar today with headline releases from the UK, Germany and United States. Following the disappointing release of the ZEW yesterday, Euro bulls will hope Germany’s September Inflation Rate will exceed expectations this morning. At the same time, the UK will release it’s latest GDP data. UK GDP YoY is forecasted at 6.7% with a previous of 7.5%. Then in the afternoon, from across the pond, Core Inflation YoY and Inflation Rate YoY will be released from the US.

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