Spectrum FX Daily Report

GBP:?The British Pound ends November on a solid footing against the Dollar and Euro but there is a distinct uncertainty amongst analysts as to how the coming month of December will play out. The Pound to Euro exchange rate looks set to end November slightly softer against the Euro (-0.18% as we move through the final session), but it is nevertheless 2.2% higher than at its lowest point, which was reached in the wake of September’s “mini-budget”. On the other hand, the Pound to Dollar exchange rate is looking to record one of its strongest-ever monthly gains having ended November a solid 4.55% higher; meaning it has advanced 15.5% since its September low. Ultimately, foreign exchange price action has been difficult to divine over recent days with multiple drivers in play and analysts appearing increasingly uncertain as to what the next few weeks will bring. Ultimately, the choppiness in currency markets?is symptomatic of a trend that is ending but where market participants are battling between deniers and accepters.

EUR:?The Euro started this morning’s trading session marginally higher ahead of key Eurozone inflation data, but sentiment remains fragile amid uncertainty over China’s COVID policies. European markets received a slight boost yesterday after inflation numbers from Germany and Spain both fell short of expectations, suggesting that the Eurozone as a whole had taken a big step closer to peak inflation. In fact, the European Central Bank had started an aggressive hiking cycle in order to combat record-high consumer prices, raising its key rates by 2 percentage points over its last three meetings. However, the aforementioned inflation figures hinted at an earlier and lower end to this year's surge, and thus a quicker end to the ECB's hiking cycle. Ultimately, European Central Bank President Christine Lagarde warned on Monday that she doesn’t think inflation has peaked yet; therefore, today’s focus will be on the Eurozone CPI release for November. This is expected to come in at 10.4% on an annual basis, down from 10.6% the prior month, but there is now clear downside potential.

USD:?The U.S. dollar slipped lower in early European trade this morning with risk appetite growing on hopes of China easing its tight COVID-related mobility restrictions. That said, moves in the foreign exchange market are relatively muted this morning as traders prepare for a speech by Fed Chair Jerome Powell on Fiscal and Monetary Policy at Brookings. As the Fed meets in December to decide the next move on interest rates, traders will be studying this speech, in addition to ADP jobs numbers and the second reading of third quarter GDP, for clues over the size of future hikes. In fact, the Fed is widely expected to slow to a 50-basis point rate increase on the 14th?of December, although some market participants are still looking for another 75-basis point hike. Ultimately, this has resulted in net short U.S. dollar positions climbing to the highest level since July 2021 in the latest week.

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