Spectrum FX Daily Report
GBP:?The U.K. reported smaller than expected public sector net borrowing for October; a welcome surprise after Chancellor Jeremy Hunt last week announced tax hikes and spending cuts to fix the country's balance sheet. However, the British pound started the week on the back foot following a surge in COVID cases which prompted a race towards the greenback . In fact, the sharp sell-off of the US Dollar last week seems to have subsided. Ultimately, renewed gains versus GBP are certainly plausible after a renewed risk averse mood as well as U.K.’s Autumn Statement which highlighted a macroeconomic outlook considerably worse than elsewhere.
EUR:?European stock markets opened?marginally lower this morning as a surge in COVID cases in China weighed on growth expectations for the world's second-largest economy. This has sparked concern that the country could see a return of widespread mobility restrictions, weighing on economic activity in the region’s main growth driver and a major export market for Europe’s companies. At the same time, inflation in the Eurozone soared past 10% at the end of last month, up from 9.9% in September, which will see the European Central Bank continuing to hike interest rates, weighing on economic expansion in the region. Ultimately, the ECB has ratcheted up rates by 200-basis points since July, and another increase is widely expected in December.
USD:?The U.S. dollar gained in late European trade yesterday, as worries that the escalating COVID situation in China would stunt the global economic recovery prompted safe haven flows. In fact, the Dollar Index, which tracks the greenback against a basket of six other currencies, gained 0.8% overnight and was last seen at 107.50, the largest daily gain since November the 3rd. Yet, despite these dollar gains, many analysts think the dollar's strength may now be short-lived. Timing the peak of USD is not straightforward, but on balance, the USD will crest as and when there is more clarity on the Fed’s terminal rates. Ultimately, the Federal Reserve will publish the minutes of its November meeting on Wednesday, and this could provide more clues over whether policymakers may now be considering slowing the tightening process.
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