Market news

22 November 2021

GBP/USD struggles at 1.3400 on Fed’s Jerome Powell reappointment

  • GBP/USD falls close to 0.40%, as US President Biden nominates Fed’s Chair Powell for a second term.
  • BoE’s members keep expressing worries about inflation, though the market remains cautious as the central bank disappointed in its last meeting.
  • US Treasuries and the US Dollar advance firmly during the day, as investors express that the reappointment of Powell is good for the US economy.

After closing in the red on Friday, the British pound extends its fall against the greenback, down some 0.36%, trading at 1.3394 during the New York session at the time of writing. In the overnight session, cable traded choppy, within the 1.3420-50 range, despite some Bank of England’s members talking with the press over the weekend. Furthermore, the White House released a statement, nominating the Fed’s Chairman Jerome Powell to a second term, that witnessed a slide of 50 pips in the pair, under 1.3400.

BoE’s policymakers continue expressing worries about elevated prices

After disappointing a rate hike at its previous meeting, market participants begin to be more cautious regarding BoE’s Governor Andrew Bailey comments.  Over the weekend, Governor Bailey expressed that inflation could be “elevated for longer,” though there is also the chance that it could not be as permanent as feared.

Bailey further added that “there are risks both ways. Obviously, our concern would be that if it gets into second-round effects, it could be elevated for longer.” During the last week, Governor Bailey expressed that he is uneasy about the inflation outlook.

However, the BoE failed to hike rates, as money market futures have foreseen, following comments from Bailey and the new Chief Economist Pill, expressing concerns about inflation which investors interpreted as a rate hike.

Brexit jitters keep GBP bulls at bay, as talks between the Eurozone and the UK regarding North Ireland and fishing rights slowed down, maintaining investors uneasy, moving from risk-sensitive currencies towards safe-haven ones.

Meanwhile, the US Dollar Index extends its gains, up 0.48%, sitting at 96.45, underpinned by Fed’s Jerome Powell nomination. Also, US Treasuries extend their gains during the day, with the 10-year Treasury yield advancing seven basis points, sitting at 1.60%, as investors view the reappointment as a continuation of the monetary policy path drawn by the Fed in the last couple of meetings.

Therefore,  central bank policy divergence seems to favor in the near-term the British pound. However, another failure to hike overnight rates by the BoE on the December meeting would question its credibility, as members express opinions concerning inflation, though voting differently. Regarding the US, the Fed could probably use its monetary policy meeting in December to increase the bond taper pace or leave it untouched, as some policymakers have been vocal, about inflation hitting 6%, three-times the central bank target, leaning towards a faster QE's reduction pace, that could leave room for the central bank to act.

 

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