GBP

The pound has begun the day around half a cent lower than yesterday’s close against the dollar, but steady against the euro. The dollar has found support after a host of Federal Bank officials commented on the need to tighten monetary policy as inflation has hit levels not seen for several years. British companies are struggling to find the staff they need and expect higher inflation in the year ahead, according to a survey published on Thursday by the Bank of England. The BoE’s monthly Decision Maker Panel survey of nearly 3,000 businesses showed 85% of firms were finding it harder than normal to recruit new employees. The survey also found businesses expected inflation in one year’s time to be 4.2%, up from 3.9% in the October survey and the same as the most recent official inflation. The UK and EU’s chief negotiators will meet later today as it appears talks will continue into the new year. On Thursday, Ireland’s Foreign Minister Simon Coveney said it was unlikely all issues linked to the protocol can be resolved by the end of the year.

EUR

The euro’s recent rally against the dollar has stalled in early trading as it again tests recent support levels. The single currency had found support against the greenback earlier this week as markets anticipated the new covid variant could delay the US Federal Reserve Bank tapering their pandemic bond buying scheme. However, recent comments from Fed policymakers have contradicted this and the dollar has continued its rally. In an interview with Reuters this morning, ECB President Christine Lagarde said inflation is still seen as temporary and may have already peaked, soon beginning a decline that will continue through next year. Later today, retail sales figures for the bloc are released.

USD

The dollar gained on Friday against most major currencies ahead of key jobs data that could clear the way for an earlier than expected hike by the Federal Reserve Bank. Consensus opinion among economists is that the US created 530,000 new jobs last month. Central bank officials speaking yesterday joined Chairman Jerome Powell’s recent hawkish stance, with San Francisco President Mary Daly saying it may be time to “start crafting a plan” to raise rates to combat inflation and Richmond President Tomas Barkin throwing his support behind “normalising policy”. Also joining the chorus for policy tightening was Cleveland President Loretta Mester, who believes there could be 2 hikes next year.

Economic Calendar

10.00 EUR retail Sales
13.30 US non-farm payroll
15.00 US ISM PMI services