Sterling held a firm tone during Wednesday with an underlying lack of selling pressure. There were further expectations that the Bank of England will raise rates at this week’s policy meeting. Sterling pushed to 10-day highs against the dollar before fading slightly as equities retreated from daily highs. Overall risk conditions were still relatively calm which limited any potential Sterling selling. There are strong expectations that interest rates will be increased to 0.50% with Sterling sliding if rates are not increased. If there is a hike, market reaction will be determined by the medium-term guidance and overall policy stance. There are doubts whether the bank rhetoric will match market expectations which may leave the pound vulnerable. There are also expectations that Chancellor Sunak will announce government measures to curb the forthcoming jump in retail energy prices.
Key Data
12.00 Bank of England Interest Rate Decision Exp. 0.5% Curr. 0.25%
12.00 Bank of England Minutes
12.00 Bank of England Monetary Policy Summary
12.30 Andrew Bailey Speech
The headline Euro-zone CPI inflation rate increased to 5.1% for January from 5.0% previously which was substantially above consensus forecasts of 4.4% and the highest rate on record. The underlying rate declined to 2.3% from 2.6%, but well above market expectations of 1.9%. The data maintained expectations that the ECB would look to adopt a less dovish stance and there was a shift in money markets with expectations of a 10 basis-point increase by July. The Euro also continued to edge higher following the data and moved upwards against the US dollar for the first time in a week.
Key Data
12.45 ECB Interest Rate Decision Exp. 0% Curr. 0%
12.45 ECB Deposit Rate Decision Exp. -0.5 % Curr. -0.5%
12.45 ECB Monetary Policy Statement
13.30 ECB Press Conference
The US ADP data reported a sharp decline in private payrolls of 301,000 for January compared with consensus forecasts of an increase around 200,000. This was the largest decline since December 2020 while the December increase was revised lower to 776,000 from the original figure of 807,000. There was a sharp decline in leisure and hospitality jobs for the month while the construction sector was one of the few sectors to post an increase in jobs. The ADP stated that the Omicron variant was the main reason behind the decline in jobs on the month. The weak data dampened expectations surrounding Friday’s employment report and that the Federal Reserve would opt for an aggressive policy tightening at the March policy meeting. The dollar regained some ground into the European close with a slightly more defensive tone surrounding risk appetite. The US currency still registered net losses before settling into the New York close.
Key Data
15.00 ISM Services PMI (Jan) Exp. 59.5 Prev. 62