ByLCMS Traders FX Analysis Team
NOV 22, 2021
(1) The UK Office for National Statistics (ONS) released last Wednesday two sets of positive reports that boosted the chance of a rate hike by the Bank of England (BoE) during the December monetary policy meeting. First off, the ONS reported that in the latest 3-month period, 247,000 jobs were added while in October alone, 160,000 jobs were added. This increase in jobs come as a surprise amid the ending of the UK government furlough scheme as opposed to the expectation that there will be a negative impact in the job market. The second positive report that was released by the ONS is the inflation report. Prices in the UK rose to a 10-year high level of 4.2%, exceeding the forecast of 3.9%. Hence, the fast-rising inflation may prompt the BoE to hike interest rate for the first time since the pandemic started.
(2) Also last Wednesday, Statistics Canada reported continued rise in inflation during October as forecasted. Despite the strong monthly rise in prices of core goods (0.6%), the market reacted negatively, causing a weakening in the Canadian dollar. This was likely due to no change in the annual common CPI data, the preferred measure of inflation by the Bank of Canada (BoC). As of last week, the common CPI was reported to be 1.8%, falling short of the BoC’s 2-3% target.
(3) In the released monetary policy meeting minutes, the Reserve Bank of Australia (RBA) elaborated that the discontinuation of the Yield Curve Control (YCC) is the preferred option of the three available options. The first option is to continue the YCC at its current target of 0.10% for its April 2024 bonds. The central bank deemed this option to be inappropriate as inflation risks are shifting higher, opening to the possibility of an earlier interest rate hike. The second option, whereby the RBA makes adjustments to the target or tenor, is highly subjective and may lead to questionable decisions. Hence, the central bank concluded that with the ongoing faster-than-expected progress towards its goals, it is best to drop the YCC.
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