The pound has held on to modest gains in early trading and had a rather muted reaction to UK employment data. The total number of people in work in the UK shrank in the last three months of 2021, when the Omicron virus swept Europe, and workers saw their earnings shrink when adjusted for inflation, the Office for national Statistics data showed. Employment was down by 38,000 in the October to December period and regular earnings fell by 0.8% in real terms. Most economists polled by Reuters in a survey released yesterday, expect the Bank of England to raise interest rates faster than previously thought to tame surging inflation. Nearly two thirds of respondents in the Feb 7-11 poll expected a 25 basis points increase at next month’s policy meeting and if correct it would be the first time the BOE has raised rates at 3 consecutive meetings since 1997.


Although steady in early trading, the euro remains vulnerable to Russia – Ukraine tensions. Those tensions intensified yesterday, when news agencies reported a fresh arrival of troops at the border and the Ukraine president said they expected an attack on Wednesday. A diplomatic solution continues today, as German Chancellor Olaf Scholz heads to Moscow to meet President Putin, with Russia’s largest trading partner warning of far reaching sanctions if it attacks. Germany’s trade volume with Russia had risen by more than 34% in 2021. Later today, GDP data for the bloc will be released along with economic sentiment surveys for both the EU and Germany.


After benefitting from safe haven flows on Monday, the dollar is trading in a relatively tight range this morning. The greenback came in for demand as geo-political tensions surfaced with the dollar index reaching a two-week high. St Louis Federal Reserve President James Bullard on Monday called for a faster pace of interest rate hikes, saying that four strong inflation reports in a row warranted more aggressive action and that the central bank needed to “ratify” market expectations about its upcoming moves. Bullard, who helped shape those expectations with calls for a 50 basis point increase at next month’s meeting last week, told CNBC that the Fed’s credibility is on the line in its quest to bring down inflation from the current 40 year high of more than 7%.

Economic Calendar

10:00am EUR Eurozone GDP
10:00am EUR ZEW Economic Sentiment Survey
10:00am EUR GER Economic Sentiment Survey