GBP

The pound was hit hard after the release of the minutes from the Federal Reserve Bank yesterday evening. Sterling had made gains against the dollar throughout the day to trade at its highest level in 2 months prior to the announcement, but the central bank’s minutes showed a hawkish tone by the policymakers and weighed heavy on the pound. This morning it has opened nearly a cent down from Wednesday’s high. Against the euro it remains steady in early trading, although it is still down around 0.3% from yesterday’s high against the single currency. Brexit issues continue to simmer in the background. The European union has taken down multiple Brexit related websites, including ‘leave.eu’, while the government is being urged to quickly get a grip of teething problems with a new post-Brexit IT system that has left lorries unable to get into the UK.

EUR

After advancing around half a cent against the dollar yesterday, the euro has opened the European session on the backfoot, as the greenback has gathered strength on rising US bond yields. The single currency suffered after the Federal Reserve Bank minutes showed that policymakers were concerned about inflation and didn’t expect the Omicron covid variant to have a significant impact on economic activity. Economic data released this morning showed that German factory orders increased at a stronger pace than expected in November but has failed to help the shared currency find demand. Inflation data, in the form of the consumer price index for the union is due later today.

USD

The dollar surged against risk sensitive currencies, as worries about faster policy tightening by the Federal Reserve Bank dented market sentiment following the release of the central bank’s minutes on Wednesday. The greenback was supported by a rise in US treasury yields which jumped to their highest level since April 2021. Last month’s meeting minutes showed that a “very tight” job market and unabated inflation might require the Fed to raise interest rates sooner than expected and begin reducing its overall asset holding, a process dubbed quantitative tightening. Traders now expect the Fed to hike as early as March. Earlier in the day, the ADP National Employment report showed private US payrolls rose last month by more than double what economists had forecast, potentially raising expectations for a stronger non-farm payrolls number on Friday.

Economic Calendar

13.00 EUR Harmonised index of consumer prices (DEC)
13.10 US Initial Jobless gains