GBP

The pound lost its bullish momentum on Wednesday when the Bank of England’s chief economist Huw Pill said he favoured a “steady handed approach” to further tightening of monetary policy. Pill voted with the majority on the nine strong Monetary Policy Committee last week to raise rates by 25 basis points to 0.5%, but four of his colleagues called for a bigger rise to 0.75% due to concerns about rising inflation expectations. Pill said his own decision had been finely balanced, but ultimately, he preferred less aggressive tactics. Later today Bank of England Governor Andrew Bailey will be speaking at TheCityUK annual dinner. Prime Minister Johnson yesterday repeated a warning to the European Union that the UK would take action to suspend post-Brexit customs checks on some goods moving to Northern Ireland if the bloc did not show “common sense”. Reuters reported that a senior government source had said the UK wanted to see enough progress in the next 10 days to demonstrate to Unionist politicians that things are moving in the right direction after they pulled out of Government last week.

EUR

The euro remains relatively unchanged against the dollar. On Wednesday, The European Central Bank’s German policymakers discussed prospects for an interest rate hike. New Bundesbank chief Joachim Nagel told German newspaper Die Ziet that if the inflation picture remains unchanged in March, he would be in favour of discontinuing the net asset purchases over the course of 2022 and then raise rates by the end of the year. Maintaining the Bundesbank’s historically conservative line, Nagel, who took charge of the German central bank in January, warned that acting too late in normalising policy could prove costly. ECB board member Isabel Schnabel speaking on a Q&A session via twitter, took a more measured view, but also argued that a rate hike may be needed to offset inflation. Later today, policymakers Luis de Guindos Jurado and Philip Lane are due to give speeches.

USD

The dollar has lost some ground, hurt by “risk on” sentiment, as depicted by a rise in global equity markets. Later today, the highlight of this week’s economic data in the form of US Consumer Price Index will be released. Economists are forecasting a 0.5% month-on month increase in January and 7.3% year-on year. Markets are widely expecting a 25 basis point (bps) interest rate increase at the Federal Reserve Bank’s March meeting, but a higher than expected figure could increase the possibility of a 50 basis point hike. Yesterday, head of the Fed’s Cleveland Branch Loretta Mester, said she did not see a compelling case for a 50 bps increase, adding rate increases after March would depend on the strength of inflation and how much it moderates or persists.

Economic Calendar

12:00pm EUR ECB’s De Guindos speech
13:15pm EUR ECB’s Lane speech
13:30pm USD US Consumer Price Index (MoM) (Jan )
13:30pm USD US Consumer Price Index (MoM) (Jan)
13:30pm USD US Initial Job Claims
17:00pm GBP BOE’s Baileys Speech