GBP

Sterling has opened the week on a strong footing as the market looks towards Thursday’s Bank of England Monetary Policy meeting. Some economists are predicting a second rate hike in less than two months, with inflation at 5.4% – the highest it has been in 30 years. Meanwhile, sterling has been bolstered by optimism that UK PM Boris Johnson will stay in power despite the recent allegations over his covid-linked performance. With the Sue Gray report still yet to be announced, UK Foreign Secretary Liz Truss says that “the future of the PM is assured”. In Brexit related news, concerns continue to loom as markets keep their eyes on the Brexit Freedoms Bill, which will introduce new legislation allowing the UK to change or scrap retained European Union laws.

EUR

The euro has opened the week slightly higher against the US dollar as the markets are looking towards the European Central Bank policy meeting on Thursday. While no change in policy is expected, analysts are beginning to warn that the window for action is shrinking with the Fed’s hike/tapering pace increasing rapidly. Preliminary readings of the Eurozone’s Q4 GDP released at 10:00am today showed a 4.6% rise versus 4.7% expected. It was expected that the spread of Covid and health restrictions were likely to weigh heavy on Q4 growth. The market now looks towards the release of Germany’s Harmonised Index of Consumer Prices at 13:00pm today, although the euro will likely take more direction from the bloc’s CPI reading released on Wednesday.

USD

Despite the dollar’s performance last week – with the dollar index posting its biggest weekly rise in seven months, the greenback has lost momentum in this morning’s European open. More hawkish comments over the weekend from a Federal Reserve official sent the US yield curve to its flattest levels in 3 months. Although rate hikes are generally positive for the respective currency, the pace at which the Fed is looking to increase the rate has led to investors to dampen future growth expectations. Some market commentators believe the US could see as many as 5 rate hikes in 2022 with a possible cumulative 119.5 basis points rise. The dollar’s 1.6% gain last week has been tapered by 0.2% this morning with the index rate having settled around the 97.00 mark. A quiet day for macro data lies ahead.

Economic Calendar

13:00pm EUR German Harmonised Index of Consumer Prices (YoY) (Jan)
14:45pm USD Chicago Purchasing Managers’ Index (Jan)