GBP

The pound has manged to hold on to moderate gains made on Wednesday in early trading but remains vulnerable to market risk sentiment. After yesterday’s CPI index revealed that inflation has climbed to a new 30 year high, analysts at Goldman Sachs are predicting that inflation will now breach 8% in April and the Bank of England will hike at each of its meetings through to August sending interest rates to 1.75%. Human resources data company XpertHR said yesterday that UK employers have offered the biggest increases in annual pay settlements since 2008, reporting that the median pay award in the three months to the end of January rose 3%, a strong increase from 2% in the last 3 months of 2021 and the greatest since 2008.

EUR

The euro has lost some ground this morning after a Russian news report of mortar fire in Eastern Ukraine. Russian-backed rebels accused Ukraine forces of shelling their territory in violation of agreements aimed at ending conflict in the contested area of Donbass. The single currency fell as much as 0.4% as traders immediately saw the risk of further escalation, however a Ukraine denial and the location of the reported attack within an already contested territory calmed market nerves. European Central bank policymaker and Latvian central bank head Martins Kazaks said on Wednesday that an interest rate hike this year is “quite likely” adding that high inflation is altering the balance of ECB policy debate. This afternoon the ECB’s chief economist Philip Lane is due to speak via a Q and A webcast discussing “the Eurozone economy and ECB policy”.

USD

Federal Reserve Officials set plans into motion at their most recent meeting to begin raising interest rates and shed trillions of dollars in bonds on the central bank balance sheet according to minutes released on Wednesday evening. However, there was no discussion of a 50 basis point hike at their next meeting and overall the market regarded the minutes to be somewhat “dovish”. Data released yesterday showed US retail sales leaping to 3.8% in January, far above the 2% expected, despite recent consumer surveys reporting a gloomy mood among shoppers due to rising inflation. In an interview with a French news agency AFP, US Treasury Secretary Janet Yellen noted that the American economic recovery remains on track while expressing her concerns over soaring inflation.

Economic Calendar

13:30pm USD Initial Jobless Claims
13:30pm USD Philadelphia Fed Manufacturing Survey
14:00pm EUR ECB Philip Lane Speech