Treasury Market Commentary –

When will the Bank of England increase rates?

A weekly economic update from our Treasury team.

Published

19th November 2021

Category

Macro Commentary

The Bank of England look increasingly likely to raise interest rates next month following strong UK data this week. Headline inflation hit 4.2%, its highest in almost a decade, whilst the jobs numbers were also stronger than expected, despite the furlough scheme ending.

The outlook remains hugely uncertain, with Covid continuing to pose a real threat ahead of winter, and surging energy prices, tax rises, and the ongoing dispute between the UK and the EU all providing significant market risks.

In the US, the economy continues to perform strongly, with growing pressure on the Fed to bring forward policy tightening. There is growing speculation that current Fed chair Powell will be replaced, which may impact the interest rate outlook.

Whilst in Europe, the ECB continues to be a lot more cautious, as they expect higher inflation to be transitory, reiterating that interest rates are likely to remain negative until at least 2023, which will continue to weigh on the Euro.

On the exchanges, volatility remains extremely high on the uncertain outlook, with the dollar generally outperforming on strong economic data, and the EUR weakening on the interest rate differentials.  

GBP/USD has found a short-term base at 1.3400, whilst GBP/EUR hit a new year-to-date high above 1.1900, with the hugely significant 1.2000 level now coming into focus.  

GBP/EUR – 1-year chart

Week Ahead

Date

Release

Last

Expected*

23/11/21

UK Markit/CIPS Composite PMI

57.8

n/a

23/11/21

EU Markit Composite PMI

54.2

n/a

23/11/21

US Markit Composite PMI

57.6

n/a

*Bloomberg survey / Not available

Foreign Exchange

Currency

Last

Currency

Last

GBP/USD

1.3495

USD/JPY

114.35

GBP/EUR

1.1900

AUD/USD

0.7285

EUR/USD

1.1340

USD/CHF

0.9270

GBP/AED

4.9550

XAU/USD

1858

Equity Indices

Indices

Previous Close

YTD % Change

FTSE 100

7254

+12.29%

S&P

4704

+25.25%

EUROSTOXX

4383

+23.40%

UK Benchmark Rates

Libor

 

Swap Mid (SONIA)

 

3 month

0.11250%

2 year

+0.92%

12 month

0.67838%

5 year

+1.01%


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