November 17, 2021

“Strong economic data in the US saw the dollar perform at its highest point against the yen and reached a 16-month peak against the euro boosting bets that the Federal Reserve will raise interest rates. The euro dropped to its lowest point since July 2020 following a rise in energy prices, ahead of ECB President Christine Lagarde’s speech on Wednesday which is expected to address the risks of tightening monetary policy to rein in inflation.”

Tim Hallinan, Trading Director

Main Headlines

US Treasury Secretary Janet Yellen warned again that the US government risks a cash crisis again unless Congress acts quickly again to adjust the debt ceiling, despite having done so only a month ago in October. Yellen wrote a letter to congressional leaders on Tuesday saying that the country could be left with “insufficient remaining resources” after December 15, a date she cautioned could change due to “unavoidable variability” in the government’s cash flows. In October, the Senate voted to extend the public borrowing limit by $480bn after 11 Republican senators crossed the floor to reach the filibuster target. It is unclear if the same will happen again following Senator majority leader, Chuck Schumer’s criticism of raising the debt ceiling.

UK prices have soared at the fastest rate for almost ten years, as the cost of living surged by 4.2% in October due to rising fuel and energy costs, according to consumer price index data released by the ONS on Wednesday morning. The consumer price index measure of inflation is now more than double the Bank of England’s target. According to the ONS, the costs of transport, gas and electricity bills and second-hand cars all climbed. The Bank of England has said it may have to increase interest rates “in the coming months” to tackle the problem. October’s reading is far higher than the 3.1% rise recorded in the year to September and ahead of economists’ forecasts.

GBP

Sterling is well-bid against most majors in overnight trade. UK Prime Minister Boris Johnson has written to the Speaker of the House of Commons to propose cross-party reforms to the standards system in Parliament before Labour leader Keir Starmer could do the same at a press conference. The PM’s arm was forced into proposing a ban on MPs working as paid political consultants or lobbyists to close a sleaze scandal that has engulfed Westminster. The U.K.’s unemployment rate dropped from 4.7 percent to 4.3 percent over the three months. The strong numbers make it more likely the Bank of England will start tightening policy sooner rather than later. Staff at 58 UK universities will go on strike between 1 and 3 December, causing further disruption for students in the run-up to Christmas.

EUR

The euro is lower against most majors overnight. France will not use its EU presidency to push other governments to copy its playbook and adopt a short-haul flight ban, following COP26. Transport Minister Jean-Baptiste Djebbari defended a national law prohibiting domestic flights that can be replaced by a rail journey of less than two-and-a-half hours, despite criticism from environmental groups, which argue it doesn’t go far enough. Germany’s energy regulator said it had “temporarily suspended” certification of the Nord Stream 2 pipeline, sparking a rise in UK and European gas prices. Kremlin-backed Gazprom chose to create a German subsidiary branch that was not yet properly set up according to German law.

USD

The dollar is lower against sterling and higher against the euro in early morning trade. Joe Biden, US president, said he expects to announce his pick for chair of the Federal Reserve in “about four days”, with less than three months until Jay Powell’s term expires. The choice is between Powell and Lael Brainard, a governor who has the backing of progressive members of the Democratic Party for her more stringent stance on regulatory matters. Joe Biden and Xi Jinping have agreed to hold talks aimed at reducing tensions, as US anxiety grows at China’s expanding nuclear arsenal and its recent test of a hypersonic weapon. Jake Sullivan, US national security adviser, said the US and Chinese presidents had discussed the need for nuclear “strategic stability” talks and hoped to host them soon.

Markets

Most Asian stocks fell Wednesday as the dollar held around a one-year high, bolstered by robust U.S. economic data that highlighted the case for tighter monetary policy and pushed up Treasury yields. MSCI Inc.’s Asia-Pacific stock index snapped a four-day climb, with Japan lower amid slower export gains. U.S. and European futures fluctuated. The S&P 500 extended a rally overnight on expanding retail sales and solid reports from the likes of Home Depot Inc. that supported confidence in the U.S. outlook. Markets are waiting to see who President Joe Biden picks as Fed chair nominee from Governor Lael Brainard and incumbent Jerome Powell. The yen traded around its weakest in more than four years. Emerging Asian currencies slid, and the Turkish lira extended a drop before a central bank meeting. Treasuries held losses, with the 10-year yield above 1.6%. Traders are waiting to see the strength of demand at a 20-year auction Wednesday.

Main Economic Data/Central Banks/Government (All Times CET)

8:00 a.m.: U.K. Oct. CPI, PPI

8:00 a.m.: U.K. Oct. retail price index

9:00 a.m.: Norges Bank’s Olsen speaks

10:00 a.m.: Genscape Europe ARA region crude report

10:30 a.m.: U.K. Sept. house price index

11:00 a.m.: Euro-area Oct. CPI

11:00 a.m.: Euro-area Sept. construction output

3:00 p.m.: ECB’s Schnabel speaks at virtual GS event

3:00 p.m.: BOE’s Mann speaks at virtual JPMorgan event

5:00 p.m.: Russia 3Q GDP, CPI

ECB financial stability review

Bank of Russia’s Nabiullina speaks at industry forum

U.K.’s Johnson appears before parliament’s Liaison Committee

EIA U.S. oil inventories report

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