GBP

The pound is being supported this morning after UK inflation numbers came in stronger than expected. UK CPI inflation for December came in at 5.4% year on year beating the market expectations of 5.2%. Core CPI came in at 4.2% comfortably beating market expectations of a 3.9% increase. The above expectation numbers will increase pressure on the Bank of England to raise interest rates again given inflation is now well above its 2.00% target, with a February increase looking increasingly likely. Boris Johnson’s political woes show no sign of abating as further members of the 2019 Red Wall intake of Conservative MPs have submitted letters of no confidence in the PM this morning. For the moment at least, the markets seem to be focussing on a February rate hike rather than the PM’s problems with a few analysts predicting a rise in the pound were Rishi Sunak to take his place. The fun and games will kick off today at midday with PMQ’s and as the letters surely are being accumulated by Sir Graham Brady, it feels like a matter of time before we see a confidence vote. Confirmation of Cumming’s interview by Sue Gray sounds like another nail being hammered into the coffin.

EUR

After its biggest fall in two weeks against the US dollar yesterday, the Euro is recovering slightly in early trading. Global equity market fell on yet another rally in US treasury yields and Federal Reserve Bank rate hike expectations increasing ahead of next week’s meeting led to another round of risk-off buying of USD. The ongoing threat of a Russian invasion of the Ukraine is still undermining the Euro presently.

USD

The USD rallied across the board yesterday as safe haven flows dominated the trading day. Wall street’s major indexes suffered heavy falls as US treasury yields continued to rise with the US ten-year yield trading as high as 1.90%. Many economists are now looking for an eventual move through the 2.00% level. While other global treasury rates have also risen, they are climbing far slower than US yields, this is another factor that has been underpinning the USD recently.

Economic Calendar

14:30pm US Housing Starts (Dec)
14:15pm UK BoE Governor Bailey Speech