Inflation forecast to reach 40-year high

Waiting for Omicron information

Last week, the Pound drifted lower against its US Dollar counterpart and finished the week 0.8% lower. The Pound has experienced movement of late on speculation as to whether the Bank of England will hike interest rates before Christmas or wait until 2022. It appears that comments from central bank policymaker Michael Saunders, who voted for a rate hike in the previous policy meeting, have quelled any excitement that there could be one in December. The central banker suggested he wanted more information on the impact of the new Covid Omicron variant before deciding how to vote in the upcoming meeting. Saunders said: ‘At present, given the new Omicron Covid variant has only been detected quite recently, there could be particular advantages in waiting to see more evidence on its possible effects on public health outcomes and hence on the economy.’ In the week ahead, UK growth data will be revealed, as well as industrial and manufacturing stats that could influence the Pound.

Doves among the hawks

The Pound to Euro exchange rate closed the week lower for the second consecutive week, inching down by 0.76%. The monetary policy outlook in the Eurozone seems to be at odds with the UK and US—which are expected to change in coming months—with European Central Bank President Christine Lagarde saying inflation is transitory and it's unlikely any rate hikes will occur next year. If the central bank continues its dovish stance, it's likely the Euro could soften against other currency majors. German data detailing Economic Sentiment and Industrial Production figures will be released in the week ahead. Additionally, the Eurozone economic sentiment stat will be out, and ECB President Christine Lagarde will speak twice during the week.

Inflation forecast to reach 40-year high

The Pound to US Dollar exchange rate briefly dipped below the 1.32 mark for the first time since December 2020 and closed the week 0.66% lower last week. Some of the key pieces of data in the week ahead will be inflation figures, which are expected to come in at the highest number in 40 years. The annual inflation stat is forecast to reach 6.80% year-on-year in November, which may bolster market expectations for an interest rate increase and quicker bond tapering—particularly after Friday's employment data missed expectations with the number of people entering the workforce coming in at 210K—significantly below the 550K forecast. However, unemployment fell, and labour market participation is at its highest since the pandemic. Meanwhile, Federal Reserve Chief Jerome Powell seems to be taking a hawkish outlook—a slight change in his language surrounding inflation and supportive policies created some larger market movements.

Pound hits ten and seven-week highs

The Pound to Australian Dollar exchange rate reached ten-week highs last week, closing stronger for the fifth week in a row, 1.02% higher. Meanwhile, Sterling hit seven-week highs against the New Zealand Dollar but closed relatively unchanged.
In the week ahead, Australian Service sector data will be released today, ahead of building data tomorrow. Additionally, tomorrow will see the announcement of the latest Reserve Bank of Australia interest rate decision. Markets expect it to stay on hold at 0.10%. RBA Governor Phillip Lowe will give a speech later in the week, which may provide some further insight into the bank's position. In New Zealand, a couple of medium-tier data releases could impact how the Kiwi Dollar trades, including manufacturing and retail card spending.

Bank of Canada rate decision ahead

The Pound climbed to reach its highest level in seven weeks versus the Canadian Dollar last week and closed 0.28% higher. Canadian Growth Rate data will be released in the week ahead, with forecasts to show a positive 3.0% rebound in the third quarter, following on from the second quarter's -1.1% reading. Other influential data this week will consist of Canadian Employment Change and Unemployment Rate numbers released on Friday.