Dollar rebounds

Lawrence Kaplin
Lawrence Kaplin 07 January 2022

GBP: Economy slowing 

EUR: Inflation data in focus 

USD: Awaiting key employment data 

Sterling 

Sterling eased slightly yesterday following the hawkish US Fed minutes, but still remains close to its recent highs versus the out of favour euro.

Data from the UK services sector which makes up over 80% of UK GDP showed a big loss of momentum last month with the index falling to a ten-month low, with the hospitality and travel and leisure sectors the hardest to be hit. Markets will be looking to next Friday’s GDP data for further evidence of recent UK economic performance but until then the pound is likely to be a hostage to broader market moves.

UK construction data due 9:30am.

Euro 

Over the last 2 months the euro has traded in an extremely tight 1.5% trading range as the ECB’s benign monetary policy diverts currency flows elsewhere.

Today’s EZ inflation data, although expected to come in at 4.7% which is over the double the Central Banks target rate of just below 2%, is unlikely to cause the currency to break out of its malaise as the ECB have already warned markets to expect inflation to peak close to 5%.

EU inflation data due 10am.

USD

The dollar enjoyed its best trading day for over 2 weeks yesterday following the US Federal Reserve minutes. Interest rate rise expectations surged as markets have been swift to react to the recent monetary policy sea-change at the Fed. Interest rate sensitive commodity currencies were the worst to be hit showing losses of close to 1% versus the dollar. Markets now await today's key US monthly employment report for further direction.

US employment data due 1:30pm.

Market rates 

Today's Interbank Rates at 08:05am against sterling movement vs yesterday.

Euro

€1.197

US Dollar

$1.353

Australian dollar

$1.892

South African rand

R21.30

Japanese yen

¥156.8

Have a great day and weekend ahead.