GBP

Sterling has managed to hold on to the moderate gains made yesterday in early trading. The pound’s fortunes improved amid a recovery in market sentiment that created a demand for riskier assets and currencies. Data released this morning by mortgage lender Halifax showed house prices jumped 9.8% during 2021, rising by 1.1% in December alone. This is the sharpest annual increase since July 2007. However, Halifax warned the market may cool during 2022 as the cost-of-living squeeze and higher interest rates hit household budgets. The head of the UK’s most profitable retailer Next, also underscored the threat of inflation this year. In a trading statement yesterday CEO Simon Wolfson warned of imminent price rises as operating costs had increased dramatically, mainly due to wage inflation.

EUR

The euro remains steady against the dollar in the European trading session on course to pare its first weekly loss in 3 weeks. Inflation data for the eurozone released this morning will likely dictate the single currency’s moves in the short term. Economists are forecasting a 2.5% reading for December’s consumer price index down from 2.6% in November and the annual reading to edge lower to 4.7% from 4.9%. If the data comes in stronger than expected, the euro could stay resilient on the possibility that the European Central Bank may have to tighten monetary policy in the face of persistent price pressures.

USD

The dollar retreated slightly in tandem with US bond yields in early trading. However, employment data in the form of the non-farm payroll (NFP) report due this afternoon could extend the greenbacks weekly gains, if it reinforces the case for early Federal Reserve interest rate hikes. The private sector’s ADP job report came in well above expectations on Wednesday and a strong NFP report – especially above the 400,000 forecast – will give the central bank more fuel to maintain its recent hawkish rhetoric and support a March hike.

Economic Calendar

10:00 am EUR consumer Price index
13:30 pm USD Non-Farm payroll report