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October 2021 - Monthly Economic Outlook

1 October 2021


Gain an overview of the latest developments on the currency market and anticipate fluctuation risks.
High: 1.1909 Low: 1.1562 Change: -1.96%

On both sides of the Atlantic, monetary policy is currently running on autopilot. In the Eurozone, the ECB is expected to hold further talks on ultra-accommodative measures, but not until the November or December meetings at the earliest. In the US, the Federal Reserve has simply confirmed that the tapering of asset purchases will be announced soon. The consensus view is that the announcement will be made in November, with tapering effectively starting in December. As you may have gathered, there should not be any major surprises in October as far as monetary policy is concerned. Inflationary pressures, on the other hand, should be monitored very closely. Bottlenecks in global trade still remain. In addition, we are seeing a very sharp rise in energy prices, and this is already having an impact on producer and consumer prices. Should we experience a harsh winter in Europe this year, some analysts already predict an energy crisis, bringing about electricity and heating rationing in some countries. Of course, this would have a negative impact on economic activity and could lead to a fall in the single currency.

High: 0.8662 Low: 0.8497 Change: +0.43%

In month-on-month terms, the EUR/GBP pair rose by 0.43%. After months of stability in the range of 0.85 to 0.86, the pair has once again managed to break above 0.86. On the monetary policy front, the Bank of England kept its rate and asset purchase programme unchanged. There is now concern among some members of the Monetary Policy Committee about inflationary pressures. The central bank expects inflation to exceed 4% this year. It may even rise in the coming months due to the acute energy crisis in the UK. For the time being, this does not imply a change in monetary policy. However, we must be cautious.

High: 130.71 Low: 127.98 Change: +0.12%

In September, the EUR/JPY trading range was little changed from August. The pair bounced off the 127.98 support zone which could allow a breakout around the 131.00 area in the short term. Evergrande’s woes in China culminated in increased demand for JPY in early September. However, the move did not last. As with most other central banks, the Bank of Japan is on automatic pilot. At its last meeting, it maintained its short-term interest rate target at -0.1% and its 10-year government bond yield target at around 0%. There are no plans to change monetary policy in the coming months. Finally, the central bank has openly voiced concerns about the increasing disruptions in the supply chain, which could limit the growth prospects for Japan this year.

High: 1.0833 Low: 1.0941 Change: +0.25%

No news on the Swiss side. The Swiss National Bank is on autopilot and intends to maintain its negative interest rate policy (at -0.75%) as long as necessary. The Swiss National Bank also believes that the CHF is overvalued against the euro. However, in recent weeks we have not seen an increase in central bank intervention in the foreign exchange market. From a technical analysis point of view, uncertainty prevails in the short term for the EUR/CHF pair. A clear break of the 1.0950 resistance is needed to see a rally to 1.10 and then 1.11. For the time being, EUR/CHF appears to be trading in a wide range of around 100 pips. A worsening economic or health situation may help the pair to recover from its slumber and get back into a clear trend.

High: 1.5099 Low: 1.4646 Change: -1.09%

In the short term, the Canadian dollar seems to be benefiting from the normalisation of monetary policy. At its meeting on the 8th September, the Bank of Canada kept rates and its asset purchase programme unchanged. The main policy rate is at 0.25% while the weekly volume of asset purchases is at CAD 2 billion. We expect the tapering process to continue in October. At its scheduled meeting on the 27th October, we expect the Bank of Canada to reduce the volume of asset purchases to CAD 1 billion per week. This could continue to support the CAD in the short term. There are many arguments in favour of a normalisation of monetary policy: galloping inflation and a worrying housing bubble, among others.

High: 1.6225 Low: 1.5984 Change: -0.85%

The euro fell by 0.85% against the Australian dollar in monthly variation in September. However, this decline could be short-lived. The problems of the Australian economy are manifold. The Central Bank has highlighted the risks to financial stability posed by soaring household debt and the housing bubble. In addition, the Australian economy, which is a major exporter of raw materials to China, notably iron ore, could be adversely affected by the Chinese slowdown brought about by the restructuring of property giant Evergrande. This could lead to a fall in the exchange rate of the Australian dollar.

High: 7.6705 Low: 7.4462 Change: -2.50%

The woes of Chinese property giant Evergrande have not weighed on the CNH, for now. This is striking when you consider that China is more dependent on property than Ireland and Spain were before the global financial crisis and far more dependent than the US was at the peak of 2005. The administered nature of the market certainly explains the recent evolution of the CNH exchange rate against the euro. We still expect further support measures for the economy in the fourth quarter, starting with a reduction in the reserve requirement for banks.

High: 360.59 Low: 346.80 Change: +3.56%

The Hungarian central bank continues its aggressive monetary tightening policy. As anticipated by the foreign exchange market, it raised its main policy rate again to 1.65% at its September meeting. Further rate hikes are likely to come. The central bank expects inflationary pressures to persist. Inflation is expected to rise in the coming months to around 5%. However, the monetary normalisation policy no longer seems to benefit the Hungarian currency. The HUF is down nearly 3.56% against the euro in monthly variation in September. It appears that foreign exchange market operators are focusing on safe havens, such as the euro and especially the US dollar, as they are concerned about inflationary pressures and the economic slowdown in China.

High: 311.19 Low: 291.82 Change: +5.46%

It seems clear that the US dollar has played its safe haven status to the full in recent weeks against the Hungarian currency. With volatility back in the air and fears about economic momentum growing, currency traders are well advised to retreat to safe havens. This directly benefits the US dollar. In the short term, the trend could continue. Indeed, a growing body of statistics suggests that the peak of growth is behind us. There are many risks in the months to come: Evergrande in China, the energy crisis in Europe and the rise in prices, which no one really knows where it will end.

Economic calendar:
01/10  EUR

Euro zone consumer price index in September

05/10 AUD

Central bank meeting



ADP private employment survey in the US in September

08/10 USD

US employment report in September

12/10 EUR

ZEW economic sentiment index in Germany in October

14/10 USD

US producer prices in September

18/10 CNH

Q3 GDP in China

19/10 HUF

Central bank meeting

27/10 CAD

Central bank meeting

28/10 EUR

Central bank meeting

28/10 JPY

Central bank meeting




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