GBP

Sterling continues to remain under pressure against the dollar but has managed to hold on to moderate gains made yesterday against the euro in early trading. The pound rose against the single currency on renewed Brexit optimism. Following a visit to Belfast, where she spoke to politicians and business leaders, Foreign Secretary Liz Truss said she wanted to make significant progress in trade talks with the EU by February, adding that she wanted to secure the support of all the communities in Northern Ireland, including the unionist community. Irish Foreign Minister Simon Coveney, a key member of the EU’s negotiating team, said there was a key window between now and the end of February to get the deal done. Data released by the Office for National Statistics yesterday showed that British Financial services exports have struggled to recover from twin hits of Covid and Brexit and are lingering at levels last seen in 2006 when adjusted for inflation. Financial Services, which have been touted by ministers as the key to the UK’s post-Brexit future, are the country’s largest single services export.

EUR

The euro lost over a cent yesterday and is currently trading at its lowest levels since June 2020 against the dollar. The single currency continued to suffer from the dollar rally which started after Federal Reserve Bank head Jerome Powell made hawkish comments on Bank policy outlook. Meanwhile the European Central Bank policymakers continue to believe that inflation will correct in the bloc and at this time do not intend to tighten monetary policy. However, a panel of Germany’s economic advisers released a statement this morning warning that the ECB will need to react if inflation is persistent. This morning the European Commission will release the Consumer Confidence, Industrial Confidence, Services Sentiment, Business Climate and Economic Sentiment indexes for January. Even if these data point to an improvement in consumer and business confidence in the euro area, the euro is unlikely to stage a convincing recovery against the dollar.

USD

The dollar was headed for its best week in 7 months on Friday, driven higher by a flight from risker assets and markets pricing a year of aggressive hikes by the US Federal Bank. The greenbacks rally, which started when Fed Chair Jerome Powell unleashed expectations that the central bank could raise rates five or more times this year after he left the “door open” in his press conference on Wednesday to hiking rates faster than previous cycles, shows no signs of abating. The dollar found further support when data released yesterday showed the best annual economic growth in nearly 40 years. So far this week the dollar has gained 2% against the pound and 1.7% against the euro. Consumer data, including personal income and spending is due later today, together with the Michigan Consumer sentiment index.

Economic Calendar

13:30pm US Personal Income (Dec)
13:30pm US Personal Spending (Dec)
15:00pm US Michigan Consumer Sentiment Index