Sterling boosted by BOE comments

Sydney has reopened after more than 3 months of lockdown. That ought to boost the Australian Dollar but sterling is having a very positive morning. More of that later. The Australian dollar did gain half a cent against the pound but there are very obviously GBP buyers at AUD 1.86 and that is supporting this pair at the moment.

We can seed that in the GBPNZD exchange rate which is travelling in the opposite direction to the GBPAUD rate. GBPNZD spiked to just above NZD 1.97 overnight and is still ‘bid’ as they say, even though there has been a little profit-taking on that move. There is a long-term support line at NZD 1.96. If this pair can stay above that, the upward momentum is intact and we may well see some of the highest levels since late August.

The pound’s gains come from comments by Michael Saunders of the Bank of England’s Monetary Policy Committee. He suggested investors were right to assume interest rates in the UK would rise earlier than had previously been expected and the governor of the Bank of England had already warned of significant inflation in the medium term. As I have mentioned before, inflation is a year-on-year calculation, so we will inevitably have a period of inflation. This has been exacerbated by international shipping problems, border delays due to Brexit, and HGV training and licence delays for all the well-reported reasons. That won’t stop traders and investors from doing their usual ‘headless chicken’ impression. It’s no different to people queuing round the block for petrol or loo rolls.

USD gains on greater ‘tapering’ certainty

The GBPUSD rate hit 1.3670 overnight. That’s the highest level since the 28th of September and it would undoubtedly have risen further if the US dollar were not being bought in its own right. Rising energy and commodity prices would normally weaken the US Dollar. Interestingly though, we are seeing dollar strength driven by the expectation that the Federal Reserve will start tapering their bond purchase programme this year and may even bring forward the date of their first interest rate hike. Rising inflation is not just a UK problem and central banks are all mulling their options. Slow growth and high inflation create a no-win dilemma.

The GBPEUR rate has been climbing since it dipped to €1.1550 at the end of September and is now approaching the familiar €1.18 resistance again. We haven’t seen this pair above that level since February 2020. If the pound has enough oomph to get through that level, €1.20 Is the obvious target and we haven’t seen this pair about that level since February 2016.

Strong Canadian employment data boosts CAD

It’s Canada’s Thanksgiving Day today, so there will be no Canadian traders at the desks but the Canadian dollar has strengthened on the back of a huge 157,100 jobs game for September as reported on Friday. That bought the Canadian unemployment rate down to an 18-month low at 6.9%. Add that positive data to the rising income that Canada will be receiving from elevated commodity prices and it is no surprise the Canadian dollar is showing strength. The GBPCAD rate dipped below 1.70 for the first time since early May during early trade. If this pair manage is to stay under CAD 1.70 then there is a long-term support level at CAD 1.6850 and another at CAD 1.6800. These buying levels have supported this pair since March 2020 and, arguably, since October 2019. So it will take a lot of momentum to break below those levels. With Sterling gaining support elsewhere, these maybe near the mid-term lows.

USDJPY hits highest level since Dec 2018

The biggest mover though is the USDJPY rate. This pair hit JPY 112.84 overnight, the highest we have seen since December 2018. Poor Japanese data and the aforementioned USD positives are combining to test the upper end of this pair’s limits. In May 2018, this pair hit 114.50. That must be in the minds of trades.

There is a possibility we will see the GDP assessment from the UK’s National Institute of Economic and Social Research (NIESR) today but it is not certain at the time of writing. That may be interesting. If not, the highlights will be central banker speeches. Yay!

Never mind, there is plenty to come in the rest of the week but more of that tomorrow.

While you ponder breakfast, brunch, or elevenses, I will just mention that the World Porridge Making Championship first prize has gone to Dutch chef Miriam Groot, for a stuffed meatball recipe involving white wine, mushrooms, lemon, and pepper. My Scottish ancestors will be turning in their graves.

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