Who has the best-performing currency?
Sterling tumbles on lack of BoE action
Last week, the Bank of England opted to keep interest rates on hold, despite forecasts that inflation would reach levels of 5.0% in spring 2022. While markets had anticipated a 15-basis point hike in interest rates, the BoE kept rates stable, and Sterling reacted by dropping to below the 1.35 level versus the US Dollar for the first time since early October. Policymakers agreed that interest rates would need to rise in the coming months while also suggesting that higher consumer prices would be fleeting, and therefore showed concern over small rate increments. In Brexit news, it was revealed that trade dropped by 15% in Q2, despite $1.4 billion in investment to smooth border issues. UK growth rate data will be announced in the week ahead, which could be highly influential for the Pound. Additionally, manufacturing, industrial, and trade numbers will print.
Unlikely to budge
The Euro came under pressure last week against the US Dollar when the Federal Reserve committed to tapering its monetary stimulus. In comparison, European Central Bank President Christine Lagarde commented last week that the central bank would be unlikely to hike interest rates in 2022. Lagarde suggested that long-term inflation wasn't enough to cause policymakers to budge. The latest ZEW Economic Sentiment Index will be released in the week ahead, and ECB Chair Lagarde will also speak. The ECB will also hold a non-monetary policy meeting and publish its Economic Bulletin and Macroeconomic Projections, which could sway the common currency.
Commitment to tapering
Last week, the Pound slipped to multi-week lows, closing around 1.5% softer against the US Dollar in its worst week since August. Meanwhile, the US Dollar closed 0.5% higher against a basket of other major currencies after the Federal Reserve meeting, which showed the bank's intention to ease stimulus; an upbeat employment data release also bolstered the US Dollar. Markets will now consider whether current Fed Chief Jerome Powell will be left in his role or if President Joe Biden will choose to appoint someone else for the position. Some of the most influential data out this week will include US consumer confidence and inflation readings. Inflation numbers are expected to show an increase in October, from 4.0% to 4.3% on the month and 5.4% to 5.8% on the year. Federal Reserve Chief Jerome Powell is also due to make a speech this week.
AUD and NZD
Aussie Dollar slips on RBA prospects
While the Aussie Dollar outperformed its G-10 peers in October to note a 4% rise, last week saw the Australian currency register a sharp fall. The Reserve Bank of Australia held its latest monetary policy meeting last week. The central bank pushed back its rate hike expectations, which resulted in the Australian Dollar to US Dollar exchange rate drop by around a US cent. In the week ahead, New Zealand Retail Card Spending stats will be out and could be moderately influential for the Kiwi Dollar, as well as manufacturing and services data later in the week. Meanwhile, the Australian data calendar will see highly significant Consumer Confidence and labour market stats due for release. Disappointing labour data could weigh heavily on the Australian currency, given the central bank's current stance.
Canadian Dollar continues as best-performer
The Canadian Dollar is 2021's best-performing G10 currency and has the potential to gain further in the coming months as higher oil prices continue, and the Bank of Canada takes on a more hawkish tone. The Canadian currency has climbed by around 2.6% so far this year and reached a six-year high versus the US Dollar in June. It's an incredibly quiet week ahead in terms of Canadian data. The only things worth noting are Bank of Canada Governor Tiff Macklem's speech and the BoC Senior Loan Officer Survey.