GBP

The pound has held on to yesterday’s gains made against the dollar in early trading. Sterling found demand against the greenback when Federal Reserve Bank Chairman Jerome Powell while testifying before congress, refrained from clarifying a timeline for the beginning of the central bank’s balance sheet reduction and forced US bond yields to edge lower. Against the euro, sterling remains steady, once again testing major chart points. So far, the pound has shown little reaction to allegations that Boris Johnson’s private secretary hosted a party at downing street, breaking lockdown restrictions. The Prime Minister has faced intense scrutiny over the past month after a video emerged showing his staff laughing and joking about a different party also held at Number 10 and although he has so far avoided questions over the fresh allegations, he will appear in front of MP’s at noon in what is said to be one of the most important commons performances of his political life.

EUR

The euro advanced against the dollar toward the upper limit of the range it has been trading this year overnight, but as the selling pressure on the greenback eased it has lost some momentum in the European session. As with the pound, the single currency was boosted against the dollar following the Fed Chairman’s testimony. The currency pairs next moves will likely be dictated by the release of US inflation data this afternoon. European Bank policymaker Francois Villroy de Gallhau this morning reiterated recent comments by fellow board members, telling French television that the Eurozone “are very near the peak of inflation”.

USD

The dollar slid to its weakest since mid-November against its major peers on Wednesday. The greenback’s falls came after central bank head Jerome Powell said it may take several months to make a decision on running down the Fed’s $9 trillion balance sheet. In the testimony at his re-nomination hearing before congress, Powell said the US economy was ready for higher interest rates to combat inflation but added that policymakers were still debating approaches to reducing the Fed’s balance sheet and that it could take two to four meetings for them to make such decisions. US consumer inflation data is due later today and could boost the case for an early increase in rates. Money markets are currently pricing in a 85% chance of a rate rise in March and a total of at least three quarter-point hikes by the end of the year.

Economic Calendar

12.00 UK Prime Minister’s question time
13.30 US Consumer Price index (Dec)