Treasury Market Commentary –

New Covid variant hits market sentiment

A weekly economic update from our Treasury team.

Published

26th November 2021

Category

Macro Commentary

Market focus is very much on the Bank of England and whether they will raise interest rates next month, following the recent run of strong economic data. Expectations are that Bank rate will increase to over 1% by the end of next year. The committee needs to balance the risks of rising inflation against potentially slower growth, and a very uncertain economic outlook.

Fears over the spread of a new variant in southern Africa have hit markets this morning, with the UK banning flights, as the virus continues to be a major driver of market sentiment.

In the US, there is growing pressure on the central bank to end its QE program and begin raising rates earlier than is currently forecast, as the economy continues to perform exceptionally well. The market is currently pricing in an initial rate rise in May.

The recent nomination of chair Powell for another term as head of the central bank has reassured markets and further underpinned the dollar.

Whilst in Europe the reintroduction of covid restrictions will certainly weigh on the recovery and reiterates the likelihood of the ECB keeping negative rates until at least 2023, further weakening the Euro.

On the exchanges, volatility remains extremely high on the uncertain outlook, with the dollar continuing to outperform on strong economic data, and the EUR remaining under pressure, driven by interest rate differentials.  

GBP/USD is trading at new year-to-date lows just below 1.3300, whilst GBP/EUR has eased back towards 1.1800, having hit a new year-to-date high of 1.1930 earlier this week.

GBP/USD – 1-year chart

Week Ahead

Date

Release

Last

Expected*

1/12/21

UK Markit Manufacturing PMI SA

58.2

n/a

3/12/21

UK Markit/CIPS Services PMI

58.6

n/a

3/12/21

UK Markit/CIPS Composite PMI

57.7

n/a

3/12/21

US Nonfarm payrolls

531k

500k

*Bloomberg survey / Not available

Foreign Exchange

Currency

Last

Currency

Last

GBP/USD

1.3295

USD/JPY

113.85

GBP/EUR

1.1805

AUD/USD

0.7120

EUR/USD

1.1265

USD/CHF

0.9275

GBP/AED

4.8830

XAU/USD

1808

Equity Indices

Indices

Previous Close

YTD % Change

FTSE 100

7311

+13.17%

S&P

4701

+25.17%

EUROSTOXX

4293

+20.84%

UK Benchmark Rates

Libor

 

Swap Mid (SONIA)

 

3 month

0.11963%

2 year

+0.83%

12 month

0.69450%

5 year

+0.93%


View Arbuthnot Latham’s Private and Commercial deposit rates.

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