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Currency Market Analysis

Nov 30, 2021 | Currency Market Analysis

Global Themes


Money markets have already priced out an interest rate hike by the Bank of England (BoE) in December, which has added to sterling’s depreciation against the USD, EUR, JPY and CHF. Will the BoE refrain from rate hikes for longer now the economic recovery is in jeopardy?

It’s not just a conundrum for the UK central bank, but for central banks globally. New lockdowns to curb the spread of the new variant of concern would threaten economic growth whilst also adding to inflationary pressures. Thus, stagflation fears will likely grip policymakers once again depending on the stringency of potential lockdown measures to come. Volatility was already spiking higher across multiple gauges amidst monetary policy divergences as central banks began their tightening cycle. Those currencies that were benefiting from an expected faster rate hike cycle, such as the pound, could come under additional selling pressure if the BoE stands pat for longer.

GBP/USD has rebounded from fresh 2021 lows, but remains over 2.5% lower this month, and could face its worth month this year if it finishes below $1.33 today. Meanwhile, although GBP/EUR has reversed from 18-month highs, the currency pair is nearly 6% higher than this time last year and 5% above its 5-year average rate.


Inflation in Germany surged 6% in November - its highest level since 1992. Pressure is mounting on the European Central Bank (ECB) to explain why it thinks it would be premature to tighten its ultra-loose monetary policy. Overall Eurozone inflation data will be published later this morning.

The inflation reading from Germany came in well above the ECB's target of 2% and the Eurozone data is forecast to print 4.4%, which will be its biggest rise in 13 years, adding to concerns about growing inflationary pressure in Europe's largest economy due to ongoing supply issues and rising energy costs. Inflation is rising even faster in the US though - a 6.3% jump in October from a year ago, the biggest jump for three decades. This has weighed on EUR/USD. Furthermore, rate differentials play an important role in currency valuation and the widening US-EZ spread has dragged EUR/USD over 5% lower this year.

Now, new inflation risks are brewing amidst the emergence of Omicron. New restrictions on economic activity could exacerbate supply chain issues and labour shortages and drive inflation even higher.


The global risk from the new Omicron coronavirus variant appears high as concerns grow about the efficacy of current vaccines against the new strain. Moderna’s CEO has warned it could take months to develop a variant-specific jab and financial market are thus back in risk-off mode.

There is still substantial uncertainty about Omicron’s ability to transmit, its severity relative to other strains and the effectiveness of current vaccines. According to the World Health Organisation, it could take at least two weeks to produce reliable data to answer these key unknowns. Nations globally are already taking action though, closing borders, reinstating some restrictions and speeding up vaccine rollouts (in the UK). Asian shares weakened overnight, oil has plunged 3% this morning European stocks have resumed their rout and US stock futures point lower.

Safe haven currencies like JPY and CHF are strengthening. The dollar is mixed but the euro is largely stronger – possibly because carry trades are being unwound. Risk-sensitive currencies such as AUD, NZD, NOK and CAD are all trending lower today.


Canadian Q3 GDP beat expectations expanding +5.4% annualized versus the +3.0% forecast. Q2 was revised lower from -1.1% to -3.2%. The flash estimate for October was for a solid +0.8% advance.

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