Sterling found some support in early trading when data released this morning showed UK consumer prices rising at their fastest annual pace in nearly 30 years, last month. The consumer price index rose to 5.5% in January, the highest since March 1992, above economists’ forecasts for it to hold at December’s 5.4% level. The data also showed further inflation pressure ahead as manufacturers increased their prices by 9.9% from January last year, the biggest annual jump since 2008. Earlier this month the Bank of England revised up its inflation forecasts, predicting it will peak at 7.25% in April and this morning’s data will reinforce market expectations that the central bank will raise interest rates for the third meeting in a row next month.
The euro found demand yesterday and remains steady in early trading, while waiting for fresh developments on the Russia-Ukraine conflict. The single currency came in for support on Tuesday, when Russian news agency Interfax reported that Russian troops were expected to return to barracks. However, European Commission President Ursula Von der Leyen and UK Defence Minister Ben Wallace both commented that NATO had not seen any sign of Russian troop reduction. US President Biden also cautioned that the US had yet to verify Moscow’s claims and an invasion remained possible. In an interview with the FT, European Central executive board member Isabel Schnabel said the ECB must consider the “unprecedented” rise in house prices when it comes to assessing inflation and deciding how fast monetary policy settings should be tightened.
The positive shift in market sentiment on heightened hopes for de-escalation of the Russia-Ukraine conflict has lessened demand for the dollar in early trading. Later today market attention will focus on the release of US Retail Sales and the minutes from the Federal Reserve Bank’s January policy meeting. Retail Sales are expected to rise by 1.6% on a monthly basis in January following December’s disappointing decrease of 1.9%. The Federal Reserve minutes will gain more attention from traders as they could show whether policymakers lean towards a larger 50 bps rate rise at its March meeting or whether they favour moving faster with selling the Fed’s bond holdings to tighten financial conditions.
13:30pm USD US Retail Sales
19:00pm USD Fed Reserve Bank minutes