Inflation registers fastest increase

Shifting expectations

The Pound suffered further losses last week, continuing its recent downward trend. Against other currency majors, Sterling reached its lowest level since the 26th of January 2021, with the Pound to US Dollar exchange rate sinking below the 1.32 level for the first time since December 2020. Comments from the UK government surrounding Omicron were enough to pressure the Pound lower, with more measures put in place to stop the spread of the new variant. The Bank of England will announce its latest interest rate decision on Thursday in the week ahead. Many investors had expected an interest rate hike by the end of the year, but recent Omicron concerns have seen a shift in expectations until 2022. In terms of economic data, this week will see UK inflation figures released, as well as retail numbers.

Is inflation 'transitory'?

The Euro experienced flat trading versus the US Dollar last week, moving only 0.04% at its close compared to where it opened the week as Omicron fears kept Euro investors in stasis. This week, European Central Bank policymakers are expected to announce the end of the Pandemic Emergency Purchase Programme in the latest monetary policy meeting. Investors in the Euro will be looking for comments from ECB President Christine Lagarde surrounding inflation. While the bank has insisted that recent surges in inflation were transitory, investors will be looking to see if this remains the case; a change in language here could be indicative of future monetary policy decisions. Eurozone industrial data will also be out, as well as German manufacturing stats.

7.0% stronger

Versus the Pound, the US Dollar is around 7.0% stronger than it was at the start of June this year. Recent weeks have seen a change in sentiment towards UK interest rate hike likelihood, while markets have maintained forecasts for higher rates in the US in the next six months, which have bolstered the Buck against the Pound. This week, the Federal Reserve is in the spotlight, alongside the BoE and ECB, with many expecting hawkish announcements to asset tapering. Meanwhile, services and retail stats will also be out in the week ahead, which could influence how the USD exchange rate trades.

Omicron unlikely to derail Aussie recovery

The Aussie Dollar managed to gain some ground last week after the Reserve Bank of Australia noted that the Omicron variant was unlikely to hinder the Australian economic recovery, amid speculation the central bank may look to hike rates sooner. Meanwhile, pessimistic manufacturing data out of New Zealand caused the Kiwi Dollar to soften. Further weak numbers could come in Q4 as supply shortages have dampened manufacturing activity.
In the week ahead, Australian consumer sentiment data will be out, as well as manufacturing stats, inflation numbers, and the highly significant labour market figures. It's forecast that the Australian unemployment rate could fall from 5.2% to 5.0%, as another 205K people enter the workforce in November, following last month's disappointing -46.3K contraction. Meanwhile, in New Zealand, highly influential growth data will print, with a -4.5% contraction expected in Q3 on the quarter, while the annual number is forecast to tumble from 17.4% to -1.6%. New Zealand business sentiment figures will be released at the end of the week.

Inflation registers fastest increase

Last week, the Bank of Canada kept interest rates on hold at 0.25%, in line with forecasts. However, BoC Governor Tiff Macklem suggested that while ongoing supply chain disruptions and higher energy prices continued, inflation was likely to remain at increased levels. October saw Canada record inflation levels of 4.7% while also registering its swiftest increase year-on-year in 18 years. The central bank expects consumer prices to continue accelerating in the first half of 2022 before falling back in the second half. Some influential events are scheduled for Wednesday this week, with inflation numbers due for release and a speech by Governor Macklem.