Daily Report 11/01/2022

Sterling held a firm tone in early Europe on Monday as overall net yields underpinned the UK currency, especially with increased expectations that the Bank of England could sanction a further rate increase at the February meeting. Sterling failed to sustain the move and dipped as risk appetite deteriorated, but there was a significant element of resilience. There was further optimism that England could avoid a further tightening of coronavirus restrictions with the strong vaccination booster programme helping to limit the number of serious hospitalisation rates. There were reports that the latest medical evidence to the government was more encouraging which helped underpin sentiment. BRC data recorded an increase in like-for-like retail sales of 0.6% in the year to December from 1.8% previously while Barclaycard recorded a 12.2% increase in spending compared with December 2019.

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The Euro-zone Sentix investor confidence index strengthened to 14.9 for January from 13.5 the previous month and above consensus forecasts of 12.0 which suggested that overall confidence in the region was resilient. The Euro was unable to make headway at the European open on Monday with traders doubting that the gains seen on Friday after the US jobs data were justified given a strong underlying report. Overall yield spreads limited potential support for the Euro, but there was further speculation that the ECB would look to shift policy in a more hawkish direction.

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10.20 Christine Lagarde Speech

Richmond Fed President Barkin stated that he supported the December move towards a more hawkish policy stance and that the labour market is as tight as it could be right now, although he also added that the economy still has longer-term slack. He said that policy normalisation is the correct policy stance and that a March rate hike is conceivable. Markets continued to expect that the Fed would adopt a more aggressive stance and raise rates at least three times this year. There was caution ahead of Tuesday’s testimony from Federal Reserve Chair Powell and Wednesday’s CPI inflation data. The dollar will be vulnerable if there is more dovish than expected rhetoric from Powell or a lower than expected release for consumer prices.

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15.00 Jerome Powell Testifies