USD strength has been the main theme of the week, with focus solely on preparation for The Fed Reserve to begin tapering in November. Initial concerns were raised around tapering beginning too soon with the global economic recovery slowing, as well as high inflation taking place across the board.
However, with The Fed set to go ahead with tapering in November, it has led to analysts and investors pricing in rate hikes in December 2022. Yesterday also saw a number of Central Bank governors speak at The European Central Bank forum, with all governors stating a firm eye would be kept on inflation, however all were cautiously optimistic that current inflation figures would still be temporary.
Britain’s GDP figures released this morning showed the economy grew more than previously thought between April – June. The figures provided a better insight into The UK’s swift bounce-back from it’s Covid lockdown earlier in 2020, however the last 2 months have shown signs of economic slowdown due to shortages in supplies and a lack of staff as economies across the globe reopen. Yesterday Bank of England governor Andrew Bailey stated he thought the economy would regain it's pre-pandemic level of output by early 2022, which is a month or two later than the initial forecast back in August. Taking all of this into consideration, The UK is still on track to its first rate hike since the pandemic, simply due to expectations that inflation will head above the 4% level by the end of 2021.
The main contributors to GDP growth for The UK were seen in the services sector, specifically accommodation and food industries where output rose by 87.6% since the reopening of the economy back in May. Manufacturing output also rose by 1.8%, even with a shortage of microchips hurting car production.
Later today, we have GDP figures for The U.S, as well as weekly jobs data which will be closely viewed by The Fed Reserve, albeit with a firm commitment towards tapering in November. Later today see’s Germany’s inflation figures released with the forecasts showing an increase to 4.2%. With Germany contributing upwards of 40% of Euro-Zone output, this should have an influence on Euro-Zone inflation due out Friday morning.