Dollar continues to strengthen, euro below in the red (Daily analysis 22.11.2021)

22 Nov 2021 8:03|Bartosz Sawicki

Fears that Europe will return to full-scale lockdowns have taken over as a factor dragging down the euro and pushing up the dollar. The mood is extremely unfavourable for emerging markets.

The EUR/USD pair is under 1.13. The weakness of the common currency is also reflected in the EUR/CHF's drop under 1.05 and the EUR/GBP to 0.84. CEE3 currencies are particularly weak, especially the zloty. The EUR/PLN exchange rate is above 4.70 and is the highest since the Global Financial Crisis. The Scandinavian currencies characterised by strong trade ties with the eurozone are also dropping sharply. The Norwegian krone is under additional pressure from cheap crude oil. The price of a barrel in London has fallen below 80 USD.

The market seeks the key to Fed's intentions

The US economy picked up pace in Q4, and inflation accelerated sharply to its highest level in three decades. This leads markets to bet that asset purchases will be brought to an end sooner than the plan presented just three weeks ago. This was confirmed by the recent words of an influential Fed member, James Bullard. He suggested that a pace of reduction of quantitative easing not amounting to USD 15 billion but USD 30 billion per month would be more appropriate. Vice-Chair Richard Clarida also suggested the possibility of accelerating the process.

The matter is important because the sooner the pandemic buying goes away, the sooner the first interest rate hike will be possible. The market will be looking for clues as to the openness of the remaining monetary authorities to faster normalisation in the minutes of the latest FOMC meeting published on Wednesday. While the market may have become too comfortable with the valuation of tightening in the next two years, at the moment, all the trump cards are on the dollar's side. First and foremost, the single currency is seen in an extremely negative light.

In Europe, the spotlight will be on the economic barometers, which will tell us how much economic growth is slowing down. PMIs will be published tomorrow and the German IFO index on Wednesday.

22 Nov 2021 8:03|Bartosz Sawicki

This commentary is not a recommendation within the meaning of Regulation of the Minister of Finance of 19 October 2005. It has been prepared for information purposes only and should not serve as a basis for making any investment decisions. Neither the author nor the publisher can be held liable for investment decisions made on the basis of information contained in this commentary. Copying or duplicating this report without acknowledgement of the source is prohibited.

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