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Markets await Powell testimony

Lawrence Kaplin
Lawrence Kaplin 11 January 2022
GBP: Cost of living crisis
EUR: SNB intervention
USD: Powell to remain hawkish

 

Sterling

Sterling had a mixed performance yesterday, after initially moving higher and posting a fresh 2-month high against the US dollar and 23-month high versus the euro, the rate eased back as broader market sentiment turned negative. With inflation soaring to a decade high of 5.1%, fears over a cost-of-living crisis are further increasing, prompting PM Johnson to acknowledge that there are many financial pressures facing UK households and warned: "I think inflation is likely to be the highest it’s been since the early ‘80’s". Overnight the British Retail Consortium reported a slow-down in the annual growth of retail sales from a previous increase of 1.8% to 0.6%.

With no UK economic data scheduled before Friday's GDP numbers, Sterling's path is likely to be dictated by broader market sentiment.

 

Euro

Increasing market chatter of the Swiss National Bank intervening to support the euro helped cushion the single currency yesterday. The ECB continue to instruct markets to look through the steep rise in inflation, and comments overnight reconfirmed they see inflation returning to target in 2023/2024.

Markets will now focus on comments from ECB President Lagarde who is due to speak later this morning.

 

US dollar

The dollar recouped earlier session losses as markets turned risk-off over fears of rising interest rates and a slowdown in Chinese economic activity. JP Morgan Chief Jamie Dimon and Goldman Sachs added further fuel to the fire by stating they expect at least 4 US rate hikes this year as market fears intensify the Fed are falling further behind the curve. Ahead of Fed Chair Powell's testimony slated for later today, a prepared statement showed he believes the economy is expanding at its fastest pace in many years, the labour market is strong, and that the economy has rapidly gained strength despite the ongoing pandemic, giving rise to elevated inflation.

 

Market rates

Today's Interbank Rates at 07:49 against sterling movement vs yesterday.

Euro €1.199 -
US dollar $1.359 ↑
Australian dollar $1.892 ↑
South African rand R21.24 ↑
Japanese yen ¥156.5 ↓

 

Have a great day.