GBP

Sterling has failed to capitalise on the inflation data released yesterday which showed consumer prices rising at their highest pace in nearly 30 years. Bank of England Governor Andrew Bailey, commenting before Parliament’s Treasury Committee after the data’s release, said he was concerned that inflation pressures might prove longer lasting than previously forecast, citing surging costs and signs that cost pressures are feeding into wage demands. But he also warned that there were factors that meant price pressures could be less transitory than first assumed. Financial markets are now pricing in more than a 90% chance the Bank of England will raise rates at its meeting next month. For now, it appears looming political and Brexit uncertainties are limiting the pound’s gains.

EUR

The euro has managed to pare back modest gains against the dollar in early trading. Later today the European Central Bank will release the minutes from its December meeting and traders will pay close attention to policymaker’s comments on inflation. The central bank has already said that it will end its Pandemic Emergency Programme in March and boost the asset Purchase programme in the second and third quarters of the year and if the publication shows that some ECB members are keeping an open mind about a rate hike this year, the single currency could gain some support. Speaking to French radio this morning, ECB head Christine Lagarde reiterated the ECB did not need to act as boldly as the Federal Reserve bank because of a different economic situation.

USD

The dollar edged lower in early trading as this week’s rally in US treasury yields paused after hitting a 2-year high on Tuesday. The greenback’s gains have come as traders prepare for the Federal Reserve Bank to tighten monetary policy at a faster pace than previously thought. Futures markets have now fully priced in a rate hike in March and four in all for 2022, mirroring a poll of economists by Reuters where over half of the 86 people surveyed said they expected four hikes this year. Speaking on a wide range of subjects yesterday, President Biden said he supports the expected move to raise rates, “given the strength of the economy and the pace of recent price increases”. Biden also warned Russia that that their banks would not be able to deal in US dollars if they invade Ukraine.

Economic Calendar

12.20 EUR ECB Monetary policy meeting minutes
13.30 US Initial jobless claims