The pound fell sharply yesterday after the UK inflation rate jumped from 7% to 9% – its highest level since 1982.
Meanwhile, the pound is edging higher so far this morning, with GBP/EUR steady at €1.1998 and GBP/USD firming at $1.3613. GBP/CAD is muted at C$1.7209, while GBP/AUD and GBP/NZD are ticking higher at AU$1.8943 and NZ$2.0091, respectively.
Coming up, will a more hawkish outlook from European Central Bank (ECB) President Christine Lagarde in light of the Eurozone’s latest inflation reading lend support to the euro this morning?
After initially weakening in risk-on trade, the US dollar was ultimately able to strengthen on Monday as it rose in tandem with US Treasury yields.
What’s been happening?
This came as investors turn their focus to the upcoming release of the latest US consumer price index, which is forecast to report domestic inflation soared to 7% in December and is likely to reinforce Federal Reserve rate hike bets.
The upswing in the US dollar weighed heavily on the euro yesterday, with the pairing’s negative correlation offsetting an upbeat Eurozone Sentix investor confidence index.
Trade in the pound was mixed at the start of this week. While rising expectations that the Bank of England (BoE) will hike interest rates in February supported GBP exchange rates, gains were capped by fresh Brexit uncertainty as UK Foreign Secretary and lead Brexit negotiator Liz Truss warned she is prepared to trigger Article 16 of the Northern Ireland protocol.
Looking ahead, the focus today looks to be on a speech by ECB President Christine Lagarde.
What’s coming up?
These will be Lagarde's first comments since the publication of the Eurozone’s record inflation reading last week and EUR investors will be looking to see if it prompts her to adopt a slightly more hawkish tone and possibly even see the ECB rethink its stance on inflationary pressure in the Eurozone being ‘transitory’.
For GBP investors, in the absence of any notable UK data the focus may be on local Covid developments, with Sterling sentiment potentially weakening if infections remain elevated.
Across the pond, Fed Chair Jerome Powell will testify in front of Congress this afternoon, with the US dollar potentially rising if Powell indicates the Fed could hike interest rates as soon as March.
Joining the corporate trading desk in 2007, Phil now over sees all of Currencies Direct’s corporate dealing activity. Having gained experience working with hundreds of businesses to optimise international payments processes and execute comprehensive risk management strategies, Phil currently works with a portfolio of corporate clients whilst managing Currencies Direct’s overall market exposure
Phil has FCA approval and has completed the Certificate in International Treasury Management (CertiTM)