After benefitting yesterday from market “risk on sentiment” the pound has started the day on the backfoot against the dollar as US treasury yields rose to 1.5%, their highest in 3 months. The bond market could be the key driver for the currency pair in the short term. Against the Euro, Sterling remained little unchanged. In a speech last night, Bank of England Governor Andrew Bailey warned that the rate of economic recovery had slowed in recent months.
EUR/USD has fallen below its resistance line, hitting its lowest level in over a month with traders citing the growing energy crisis as the reason. With nations becoming more reliant on natural gas to heat homes and power industries amid efforts to quit coal and increase the use of cleaner energy sources, European energy markets from natural gas to carbon permits jumped to record levels. French finance minster Bruno La Maire on French TV this morning said higher energy cost will likely last a few more months. ECB head Christine Lagarde speaking on Monday stuck to the central bank’s official view that inflation will ease back below 2% next year while acknowledging that higher prices may last longer. The European Central Bank begins a 2 day conference today with Lagarde giving the opening speech.
Federal Reserve Bank Chairman Jerome Powell is set to testify before congress today. In his already released prepared remarks, he will tell the Senate Banking Committee that the current spike in inflation has proven to be larger and more long-lasting than expected, but he believes the effects of rising inflation will abate and as they do inflation is expected to drop back toward the 2% goal. At the same time Powell said Labour market gains slowed last month especially in sectors sensitive to the pandemic and the 5.2% unemployment rate understates the shortfall in employment as indicated by the fact that the labour force participation rate hasn’t picked up. There was no mention of stimulus tapering in his prepared statement.
1.00 pm ECB’s Lagarde’s speech
1 .30 pm ECB’s De Guindos speech
2.00 pm US Consumer confidence
3.00 pm Fed Chairman Powell testifies