Good morning,

ECB head Christine Lagarde has again push back hopes of an interest rake hike scuppering any such bets from market participants. Citing the keenness to encourage economic growth in the eurozone, Lagarde yesterday said that “tightening monetary policy now to rein in inflation could choke off the euro zone’s recovery”. With inflation almost twice the current target of 2%, and with no signs of slowing down, Lagarde noted that she expected inflation to tame itself in 2022. Also pointing to higher energy prices and fuel bills, an undue tightening of financial conditions would hamper economic growth. Following this, EUR lost ground against most counterparts with bond yields also edging higher. The comments were refuted by the Deutsche Bank CEO who disagreed with the narrative of temporary inflation and called global central banks to act.

In the UK, Sterling was still trying to find some upside following the disappointing news of no interest rate hike in November. This, coupled with the potential debacle of Article 16, GBP-USD failed to break through the 1.3450 mark. Against the single currency, GBP did post some gains largely due to a EUR sell off due to the aforementioned monetary policy stance. Sterling is currently in a difficult place with potential Covid lockdowns coming back in to the fold following announcements of lockdowns in parts of Europe. Furthermore, with the November rate hike disappointing with only just two votes to raise; December’s rate hike is now also looking uncertain.

Across the pond in the US, things were fairly quiet with tomorrow core retail sales and retail sales MoM figures due, forecast at 1.0% and 1.3% respectively.

Looking to the week ahead, we have UK YoY Inflation due tomorrow – forecast at 3.9% against previous of 3.1%. Market participants will be watching this release closely and putting bets on accordingly for the December MPC meeting. Outside of this, the data front looks somewhat light with the only data piece of note being the US Treasury to release the Treasury Currency Report on Friday.

Have a good day.

Author: Joshua Nagenthiran, Senior Relationship Manager

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