Ahead of the New York open, there was speculation that England could ease coronavirus restrictions late this week or early next week with the current rules due for review on January 26th. Sterling, however, was unable to make any headway, especially with positive developments seen as priced in. Overall risk appetite held steady which limited the potential for more substantial UK currency selling and narrow ranges prevailed. The latest labour-market data recorded a decline in jobless claims of 43,000 for December and unemployment edged lower to 4.1% from 4.2% in the three months to November. The wages data was in line with expectations as the underlying rate slowed to 3.8% from 4.3%. The latest inflation data will be released on Wednesday which will be important for Bank of England expectations and Governor Bailey is also due to testify to the Treasury Select Committee on the same day with his rhetoric monitored very closely.
Key Data
7.00 Claimant Count Change (Dec) Act. -43.3k Exp. -51.2k Prev. -95.1K
7.00 ILO Unemployment Rate (3M) (Nov) Act. 4.1% Exp. 4.2% Prev. 4.2%
The Euro was unable to make any headway ahead of Monday’s New York open and tended to drift lower, although the main feature was narrow ranges. There was a slight shift in market pricing for the ECB with futures markets indicating 20 basis points of tightening by the end of 2022 compared with around 17 basis points last week despite the central bank’s insistence that conditions for a rate increase were very unlikely to be met this year.
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The dollar was supported by expectations that the Federal Reserve will have to tighten more aggressively to curb inflation pressures and would signal a potential March hike at the January meeting. Market expectations continued to increase with the potential for at least three rate hikes this year. The surge in oil prices to fresh 7-year highs will complicate central bank decision making in the short term and intensify inflation pressures. There were no significant data releases during the day and a US holiday had an important impact in curbing trading activity. Federal Reserve officials will also not be making any further comments on monetary policy ahead of next week’s policy statement.
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