GBP

The pound has begun the day on the backfoot against both the dollar and euro, after data released this morning showed a slump in retail sales in December from November. The Office of National Statistics data showed sales volumes fell by 3.7%, far bigger than the 0.6% decline expected by forecasters. This was the biggest fall since January 2021, when the country was in lockdown and compared to December 2020 the sales were down 0.9%. Also released this morning, the GfK consumer confidence index fell to -19 in January from -15 in December, as people turned more pessimistic this month in the face of fast-rising inflation and the prospect of more interest rate hikes by the Bank of England. Prior to the retail sales data, sterling had also suffered as market risk sentiment turned sour overnight.

EUR

The euro has reversed some of its losses against the dollar in early trading and remains within its recent trading ranges. The single currency showed little reaction to the release of the European Central Bank’s minutes from their December meeting yesterday. The minutes contained little by the way of surprises, hence the lack of any notable moves and the consensus opinion among economists is that the ECB does not see the conditions for rate hikes in 2022 being met. However, data released yesterday showed German producer prices grew at a pace of 24.2% in December, well above expectations of a 19.4% rise, and with the rise in consumer prices in the eurozone last month, the central bank has to be wary of upside inflation risks. Later today ECB head Christine Lagarde will be speaking at the World Economic Forum.

USD

Safe-haven flows have created a demand for the dollar overnight and in early European trading after global equity markets suffered heavy losses. The Russia-Ukraine conflict, inflation fears and the prospect of The Federal Reserve Bank tightening monetary policy helped support the greenback. The US dollar index advanced to its highest level in more than a week and in the absence of any major economic data releases today from the US, risk sentiment is likely to dictate the dollar’s moves. With this in mind, any news from talks between top diplomats in Geneva from Washington and Moscow today will be closely monitored.

Economic Calendar

12.30 EUR ECB Lagarde speech
15.00 EUR Eurozone consumer confidence