FX Weekly Insights — 25/10/21

Key Events

Wednesday

00:30 (AU) – CPI, QoQ, Q3 (Consensus 0.7%, Previous 0.8%)

12:30 (US) – Durable Goods Orders, September (Consensus -0.2%, Previous 1.8%)

12:30 (CA) – BoC Interest Rate Decision (Consensus 0.25%, Previous 0.25%)

12:30 (CA) – BoC Rate Statement

15:15 (CA) – BoC Press Conference

Thursday

03:00 (JP) – BoJ Interest Rate Decision (Consensus -0.1%, Previous -0.1%)

11:45 (EU) – ECB Interest Rate Decision (Consensus 0%, Previous 0%)

12:30 (US) – GDP Annualised, Q3, Flash (Consensus 2.5%, Previous 6.7%)

12:30 (US) – Core PCe, QoQ, Q3, Flash (Consensus 4.4%, Previous 6.1%)

Friday

09:00 (EU) – GDP s.a., YoY, Q3, Flash (Consensus 3.5%, Previous 14.3%)

10:00 (EU) – Core CPI, YoY, October, Flash (Consensus 1.9%, Previous 1.9%)

10:00 (EU) – CPI, YoY, October, Flash (Consensus 3.7%, Previous 3.4%)

RUB on the Ground

The CBR surprised the market with a 75bps hike- brought on by large fiscal social spending in September/ a spike in commodity markets (oil &gas)/household factors (food).

The key rate is now at 7.5%   and the USD/RUB was stronger at $70.00 after the announcement.

The CBR holds open further key rate rises due to: 

-Inflationary risks (October reading could be 1.1% m/m)

- The new lockdown for Moscow commencing October 28th and 1-week holiday for the rest of Russia brings Inflationary risks as it limits recovery on the supply side. 

- Long-term policy corridor subject to an increase revision to (7.3-8.3 in 2022) & (5.5-6.5 in 2023)

- In short, follow inflation to predict further rate rises

Market Insights across the US, UK & EU

Policy decisions from the ECB, BoJ, and BoC will be the main focus this week, even though none are expected to raise interest rates just yet. Instead, the interest will be on their attitude towards asset purchases, with many central banks looking to start or continue slowing QE purchases in the coming months. 

In the U.S. preliminary Q3 GDP data will be released on Thursday, amid expectations for a sharp slowing in growth from Q2's 6.7% pace, with supply chain bottlenecks negatively impacting activity last quarter despite the huge stimulus spending. That could pose a problem for the FOMC at its November policy meeting next week causing it to hold off on announcing QE tapering for the time being. 

In Europe the ECB meeting on Thursday will be the center of attention. ECB officials have signaled that decisions on the future of asset programs won't be taken until December, but markets will be looking for some signals on the nature of the discussion. 

Meanwhile the BoE's new chief economist Huw Pill suggested that the November BoE meeting will be a 'live' one, which means officials will discuss whether to hike the Bank Rate, which is currently 0.10%. With the economy running into supply and labour shortages, the outcome is still uncertain however, especially with the country likely to be facing an energy crisis over the winter. 

Energy is in short supply across Europe, but the U.K. has very low storage capacity, meaning that a cold winter could hit the U.K. harder than EU countries. Rising gas prices and a renewed rise in Covid-19 cases is adding to the UK’s current problems.

Chart of the Week - GBP/USD

Major Resistance: 1.40

 Resistance: 1.3846

 Major Support: 1.3578