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Currency Market Analysis

Nov 25, 2021 | Currency Market Analysis

Global Themes

US Treasury yields and the US dollar stretched higher yesterday following a slew of strong economic data from across the pond. The dollar remains firm following the Federal Reserve’s (Fed) meeting minutes published last night. Beware of a more illiquid market over the next couple of days, fuelling erratic price action, as US traders break for the Thanksgiving holiday.


The third quarter US GDP figure was revised higher yesterday, but even more supportive for US yields and the USD was evidence of an improving jobs market. Data showed Americans filing new claims for unemployment benefits fell to their lowest since 1969 last week, which jolted US inflation and interest rate expectations higher. US Treasury yields continued to inch toward their highs for the year, supporting the dollar, but the yield curve flattened – with spreads between 5- and 30-year Treasuries tightening near their lowest levels since March 2020. Meanwhile, the Fed’s minutes revealed policymakers are open to speeding up the taper of bond purchases and rate hikes should inflation pressures persist.

The surge in demand for dollars has pressured GBP/USD lower for four days straight – its longest daily losing streak since July. The currency pair fell to fresh 11-month lows yesterday but has rebounded modestly this morning.


The euro has had a tough week, month, and year. What does the end of 2021 have in store for the common currency? More supply chain challenges, reinstated lockdowns across the continent and widening rate differentials suggests more weakness may be in store.

Yesterday, German business sentiment worsened for a fifth month as a result of a spike in COVID-19 cases and ongoing supply challenges in manufacturing. GDP growth in Europe’s economic powerhouse is under threat, especially if a nationwide lockdown is announced and other European nations follow suit. Aside from the worsening health conditions and their negative impact on the economy hurting EUR sentiment, diverging monetary policy also favours further EUR downside risk, with sub-$1.12 levels for EUR/USD in play for the first time since in 17 months.

The European Central Bank has remained far more dovish than its US and UK counterparts, resulting in the fall of EUR/USD and the rise of GBP/EUR – which continues to test fresh 18-month highs.


The British pound is over 2.5% weaker against the US dollar so far this month, but 0.5% stronger against the euro and a few percent stronger against most pro-cyclical currencies like the NOK and AUD. Diminishing UK rate hike bets remain a headwind for sterling though with next month’s Bank of England (BoE) meeting firmly in the spotlight.

Yesterday, money markets were pricing in a 55% chance of a BoE rate hike in December, the probability has dropped again – now to 45% as of today as investors remain less convinced of a hawkish BoE since it wrong-footed markets earlier this month. Sterling downside pressure versus the dollar is expected to continue so long as the BoE delays tightening policy and the Fed remains hawkish. UK-EU yield spreads continue to favour the pound though with traders eying the strong resistance found at €1.1944 – the 100-month moving average – which has held firm since sterling’s sharp Brexit-induced plunge back in 2016.

In the absence of top-tier data from the UK for the rest of the month, sterling will remain sensitive to UK-EU trade talks, pandemic developments and global risk sentiment.

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