Sterling had little to feed off on Thursday and as such, its price was dictated by dollar and euro moves. Economists were looking for some direction from this morning’s release of UK GDP, but the mixed data did little to stir the market. The UK’s ONS reported that the GDP expanded by 1% in the fourth quarter, compared to analysts’ estimate of 1.1%. Meanwhile, Industrial Production and Manufacturing Production grew by 0.4% and 1.3%, respectively, in 2021, versus 0.6% and 1.7% expected. Elsewhere, UK Foreign Secretary Liz Truss will meet European Commission vice-president Maros Sefcovic for Brexit discussions today. She is expected to make new proposals in an attempt to break the deadlock over the Northern Ireland trading arrangements, stating that resolving this row is “an absolute priority”.
The euro retreated to 7-day lows against the dollar and sterling on Thursday following revised inflation and growth forecasts released by the European Commission. The inflation forecast for 2022 was raised to 3.5% from 2.2% predicted in November, whilst the Commission sees 2023’s inflation at 2.2% versus 1.7% in November. The publication further showed that the 2022 growth forecast got revised lower to 4% from 4.3%. Following this, ECB Head Lagarde stated that, “raising the European Central Bank’s main interest rate now would not bring down record-high eurozone inflation and only hurt the economy.” This consolidated the euro’s move lower. This morning’s data from Germany showed that the Harmonized Index of Consumer Prices in January was up 5.1% on a yearly basis, matching the market expectation.
The dollar gained on Thursday after higher than expected US inflation saw a Federal Reserve official ramp-up expectations of significant rate hikes this year. Yesterday’s US CPI data showed consumer prices up 7.5% year-on-year in January versus 7.3% expected, the biggest year-on-year increase since February 1982. Following this, St. Louis Federal Reserve President James Bullard said he has become “dramatically” more hawkish in light of the hottest inflation reading in nearly 40 years, adding, “I’d like to see 100 basis points in the bag by July 1”. Elsewhere, The US State Department cited “increased threats of Russian military action” as the key risk to put Ukraine on the “Level 4: Do Not Travel” stage. This escalation in tension could play into the safe-haven dollar’s hands. Today’s release of the University of Michigan’s flash February Consumer Sentiment Index could offer some end-of-week direction.
15:00pm US Michigan Consumer Sentiment Index (Feb)