IFX Market Report: Wednesday 20th October 2021

Sterling strengthened yesterday after the Bank of England governor Andrew Bailey reiterated his claim that the central bank “will have to act” over rising inflation. This morning at 07:00 Britain printed its latest inflation figures, showing a temporary dip to 3.1% in September. The decline in inflation is said to be “temporary… because the level of prices in the UK plateaued for five months following September last year and there have already been large increases in important price categories this month”. The Bank of England and several notable economists have said they believe the annual rate will rise further and “stay well above the bank’s 2% target during most of 2022, raising the threat that higher prices might become ingrained in companies’ pricing policies and workers’ wage demands”.

After a tough session on Monday, Cable was able to advance beyond 1.3800 on Tuesday, and sustain itself at that level. GBPUSD opened yesterday at 1.3782 and closed at 1.3808.

GBPEUR also managed to catch some upside yesterday – opening at 1.1826 and closing the session at 1.1869.

EURUSD was able to jump to 3-week highs on Tuesday morning due to retreating US Treasury yields. The pair surpassed the 1.1650 mark in the Asian session and maintained this level until the European open. EURUSD opened on Tuesday at 1.1653 and closed just below at 1.1631. Despite this recent run of form, many experts argue that the “divergent monetary policy outlooks between the Fed and the European Central Bank (ECB) could likely pose a downside risk to EURUSD’s further upside”. Looking to today, “the pair will remain at the mercy of US Dollar price action and risk trends amid a data-light economic calendar”.

On the data front, at 10:00 the Eurozone will publish their latest inflation figures. Inflation MoM is forecasted at 0.5%, with a previous of 0.4%. Then in the afternoon from the US, Fed member Quarles will be speaking at 18:00.

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