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To hike, or not to hike

To hike, or not to hike 

Last week, the Pound softened against other currency peers but briefly reached above interbank levels of 1.19 against the Euro and 1.38 versus the US Dollar. The British currency has been bolstered in recent trading by increased expectations for an interest rate hike by the Bank of England. Therefore, one of the main events for the week ahead is the Bank of England's interest rate decision. Markets anticipate a 12 basis point increase this week and a bigger 25 basis point rise in December. Later in the week, more BoE representatives will speak, and markets will likely review their comments carefully.

Sticky inflation

Last week the US Dollar reversed some recent losses, climbing to close the week 0.5% higher on a trade-weighted basis. Highly influential US manufacturing data will be out this week, followed by the Federal Reserve's November interest rate decision and follow-up press conference. Markets anticipate that the US central bank will announce a scaling back of its bond purchasing programme as the labour market recovers and inflation increases. The week will end with the high-tier Non-Farm Payrolls reading—expected to show a bumper 413K people entering work in October. The US Unemployment Rate is also anticipated to improve slightly.

Fed rate decision ahead

The Pound managed to reach five-week highs last week but closed the week flat against the US Dollar. On Friday, US Federal Reserve Chair Jerome Powell announced that the central bank is ready to begin tapering its asset purchases but wasn't yet in a position to start increasing interest rates. Markets are currently anticipating interest rate hikes to take place in the US between May and July. In the week ahead, influential inflation data will be on the market's radar, with a number of companies speaking out about rising consumer costs. Additionally, high-tier Durable Goods Orders and growth stats will also be released and could impact the way the US Dollar trades.

RBA in focus

The Pound to Australian Dollar exchange rate closed 1.23% lower last week, after hitting its weakest since May 2021. Meanwhile, the Sterling to New Zealand Dollar pairing touched its lowest since February 2021 but closed 0.85% higher. This week, Australia's opened its borders for the first time during the pandemic, allowing permanent residents and citizens to enter the country—it's estimated 47,000 people are abroad and registered with the authorities waiting to return. Additionally, fully vaccinated visitors from New Zealand can enter Australia if they provide proof of negative Covid tests and meet other conditions. Overnight, Australian Home Loans stats came in lower than forecast. In the rest of the week, the Reserve Bank of Australia will also make its November interest rate decision, with markets expecting no change from the 0.10% rate currently in place. The bank will release its statement regarding monetary policy later in the week. Other events will include highly influential New Zealand labour market data and medium-tier Australian retail stats.

Labour data ahead

Versus the Canadian Dollar, the Pound closed last week 0.43% softer. In the week ahead, Canadian manufacturing, building, and trade balance numbers will be released. Some of the most important data will come later in the week, consisting of labour market stats; forecasts suggest unemployment numbers may slip slightly lower, while a positive number of people re-entering the workforce is also expected to print.