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Bannockburn Global Forex Drivers for the month ahead November 1, 2021 View Online Economic Calendar November 1: Reserve Bank of Australia November 3: Federal Reserve November 3: Eurozone Unemployment Rate November 4: Norges Bank November 4: Bank of England November 5: US Employment Data November 5: Canada Employment Data November 8-11: Central Committee of Chinese Communist Party November 10: US CPI November 11: Mexico's Central Bank November 16: National Bank of Hungary November 18: Central Bank of Turkey November 23: Reserve Bank of New Zealand November 25: US Thanksgiving Day Holiday November 25: Riksbank November 25: Bank of Korea November 30: Eurozone Preliminary November CPI November 2021 FX Outlook The US dollar fell against most major currencies in October, but it appears poised to stage a recovery in November. It will be helped by the beginning of the Fed’s slowing its bond purchases and the market bringing forward the first rate hike from the end of next year to midyear. After a disappointing Q3 GDP, the US economy appears to be re-accelerating, though the growth peaked earlier this year. Across the Anglo-American economies, there was a dramatic re-pricing of the reaction function of central banks. In the UK and Canada, this has been encouraged by official rhetoric. New Zealand has already begun increasing rates and is likely to take the next step when it meets in late November. The market is challenging the Reserve Bank of Australia’s claim that policy rates may not need to rise until 2024. The swap market is pricing in nearly 90 bp of tightening over the next 12 months. West Texas Intermediate crude oil rose nearly 12% in October after rising almost 10% in September. Inflation expectations have been driven higher by the rally in oil prices. Because oil is still a key input in agriculture and industry, we remain concerned that its appreciation is more like broad economic tax. The last three recessions in the US were preceded by a doubling of the price of oil. Continue reading below... Supply chain disruptions are set to continue, and they serve to boost prices and disrupt production. Still, stagflation seems an exaggeration. There are exceptions, but growth in many countries remains above pre-Covid averages, and unemployment is still falling. Moreover, policymakers are familiar with efforts to bolster aggregate demand. This time the problem is on the supply side. The pursuit of profits is expected to address it though it may take a while longer. That said, preliminary indications suggest the shortage of semiconductor chips, which has crushed vehicle production (and therefore sales), is past the worst. The eurozone and Japan will lag in this interest rate cycle, and a weaker euro and yen appear to suit local policymakers. A stronger dollar may serve to help dampen US inflation. Still, we suspect the market may have overshot interest rate expectations in the US and UK. According to the Commitment of Trader, the large short dollar speculative position in the futures market at the start of the year has been reversed on many pairs. Click here for the full monthly outlook Our GDP-weighted currency basket, the Bannockburn World Currency Index, snapped a two-month decline and rose by 0.35%. The rise in the index reflects the outperformance of the currencies against the dollar. The currencies from the G10 countries, including the dollar, account for about two-thirds of the index, and emerging markets, including China, the other third. The yen was the weakest of the majors, falling 2.3%. It has a weighting of 7.5% in the BWCI. Among the emerging market currencies in our GDP-weighted currency index, the Brazilian real's 3.4% decline was the largest, but its 2.1% weighting minimizes the drag. It was nearly offset by the Russian rouble's 2.5% advance. It has a 2.2% weighting in our basket. The Chinese yuan, which has a 21.8% share, rose by 0.6%. By: Bannockburn Global Forex 255 East Fifth Street, Floor 8 Cincinnati, Ohio, 45202, United States