Weekly Market Update 10/09/21

UK

Sterling, at last, made some headway against its main trading rivals yesterday and has held on to the gains this morning. Its strength was caused mainly by comments from the Bank of England’s Dave Ramsden, who said that on balance, he was more concerned by inflation than disinflation. His comments reignited hopes that the Bank of England may signal a slowdown in its asset purchases at its September meeting. Sterling was also helped by the ECB’s cautious approach. The UK released series of mixed reports this morning. August’s Manufacturing Production was as expected whilst Industrial Production beat estimates and Gross Domestic Product for July disappointed.

Euro

The euro gave back some of the gains recently made after the European Central Bank meeting generally disappointed the markets. The ECB did announce that it was recalibrating its pace of asset purchases, in other words slowing them down. In many ways, this was a token step that leaves the ECB still playing catch up with both the Bank of England and the Federal Reserve. With the hard decisions on tapering seemingly postponed until the end of the year, the euro may now drift towards the lower end of its range against sterling and the dollar. With its new inflation target of 2% recently set, it will be interesting to hear how Christine Lagarde reacts when she speaks later this morning after the announcement that Germany’s Consumer Price Index was 3.9% in August.

US

The dollar lost some ground yesterday, particularly to sterling, as risk sentiment improved worldwide. The change in mood was triggered by President Biden talking with China’s President XI for the first time in seven months and the US unveiling a six-pronged plan to combat Covid-19. Yesterday’s weekly jobless total was in line with the consensus forecast, and the market appears to be pausing for breath before this afternoon’s release of August’s Producer Price Index. With some policymakers at the Federal Reserve starting to deliver hawkish speeches again, any number greater than 8.2% will encourage further demand for the dollar as thoughts are reignited that the Fed will begin to taper sooner than recently anticipated.