The pound has consolidated its gains made yesterday in early trading. Sterling found support on Tuesday when data showed that UK manufacturing output grew at the fastest pace in six months in January, as global supply chain pressures began to ease. The Manufacturing PMI index rose to 54.5 last month, its highest since July 2021, beating market expectations of 53.8 and factories also reported some easing of inflationary pressures. This will be welcomed by the Bank of England, who are widely expected to raise rates for the second consecutive month tomorrow. Prime Minster Johnson remains under political pressure. This morning in an interview with Sky news, Conservative MP Tobias Ellwood revealed that he will be submitting a letter of “no confidence” to the 1922 committee today. Senior MP Ellwood will become the 12th Tory MP to call for Johnson’s resignation.
The euro is trading firmer in early trading against dollar, underpinned by market “risk on” sentiment. Market focus later this morning will be on the release of Eurozone inflation data. December’s Consumer Price index for the bloc showed prices rising at a historic 5%, but January’s figure is expected to ease slightly to 4.4%. However, there will be caution when interpreting the data. As with the recently released German inflation data, January’s Eurozone figure will not include a VAT change that led to a spike in inflation pressures last year and this could drag down the overall figure and as such it is unlikely that the European Central Bank policymakers will prematurely call victory on the inflation front just yet.
The dollar remains steady in early trading after weakening against its major rivals on Tuesday. The risk-positive market environment made it difficult for the greenback to find demand with the dollar index erasing a large portion of last week’s gains and the benchmark 10-year US Treasury bond yield returning below 1.8%. The dollar has also lost support since recent Federal Reserve Bank members comments pushed back expectations of a 50 bps rate increase in March, although it is widely expected they will still raise rates by 25 bps. Later today the ADP private-sector employment report for January will be released.
11.00 EUR Consumer Price index
13.15 USD ADP employment report