GBP

Sterling remains steady in early trading as traders look ahead to the Bank of England rate decision at 12:00 pm. Facing pressure to curb surging inflation, the BOE is expected to raise interest rates by 25 bps to 0.5%, further unwind its pandemic stimulus and potentially signal the case for future hikes. A survey published today by Incomes Data Research which monitors pay reviews, said employers are offering higher pay deals in the face of staff shortages and rising inflation, with employees typically receiving raises worth 3% in 2022, up from 2% last year. Northern Ireland’s agricultural Minister Edwin Poots ordered all Brexit checks on food and farm products to be stopped in a unilateral move which was threatened last week after talks with Foreign Secretary Liz Truss. Northern Ireland secretary Brandon Lewis indicated on Wednesday that the UK would not intervene on the decision which will anger Brussels. The decision was called unlawful by the Republic of Ireland and opposition parties in the Northern Ireland executive.

EUR

The European Central Bank is all but certain to keep policy unchanged at today’s meeting, but could acknowledge that inflation may stay higher than it had projected, a signal that traders may take as a hint as a faster exit from stimulus. Having extended support measures at their December meeting, any policy changes would appear premature, however inflation has consistently exceeded the ECB’s forecasts and some policymakers have questioned the central bank’s narrative that rapid price growth is merely temporary. With last month’s inflation figure at 5.1%, pressure is increasing on President Lagarde to acknowledge mounting risks. If Lagarde admits that the ECB has underestimated price pressures, markets will bring forward rate hike expectations lending support to the euro.

USD

The dollar managed to stage a modest recovery overnight after falling to a one week low on Wednesday. Yesterday’s falls came after data released showed a drop in private sector employment in January due to an increase in Covid infections and eased expectations that the Federal Reserve Bank would announce a large interest rate increase at its policy meeting in March. The ADP report showed that private payrolls dropped by 301,000 last month and following the report’s release, the US rate futures market showed a probability of a 50 bps hike in March at 6.5%, down from 32% late last week. Later today the Purchasing Managers’ Index (PMI) for the services industry is released.

Economic Calendar

12:00pm GBP Bank of England interest rate decision
12:00pm GBP Monetary Policy Report
12:00pm GBP Bank of England minutes
12:30pm GBP BOE’s Governor Bailey speech
12:45pm EUR ECB interest rate decision
12:45pm EUR ECB Monetary policy Statement
13:30pm EUR ECB press conference
15:00pm USD ISM PMI services