Industrialism

Oil rises to a 7-year high

Lawrence Kaplin
Lawrence Kaplin 18 January 2022

GBP: Awaiting key inflation data

EUR: Rising energy prices hamper growth

USD: Yields rise to a 2-year high

 

Sterling

Sterling backed away from its recent highs yesterday as markets await the release of tomorrow’s key UK inflation data. In what was an extremely quiet US bank holiday trading session the pound found it hard to build on recent gains. Markets are now fully pricing in a 0.25% rate hike next month and a further 3 interest rate rises by year-end. This aggressive pricing, along with a broad US dollar sell-off has led to sterling rallying over 4% off the December lows, but with the UK consumer struggling as inflation soars and the new Brexit trade rules now being enforced the UK economy faces a very uncertain few months ahead. UK Employment data released this morning was broadly in line with market forecasts.

No major economic data is scheduled.

 

Euro

The euro eased lower yesterday as markets are reluctant to push the single currency higher given the benign interest rate outlook and surge in energy prices. Recent mixed messages from the ECB regarding monetary policy and their fight against inflation are doing little to support the currency, leaving markets now unsure as to the Central bank’s monetary policy. The ECB’s Vice President had recently sounded more open to reviewing their extremely accommodative monetary policy later this year should inflation remain at the current elevated levels, whilst President Lagarde remains adamant there will be no changes through 2022.

EZ and German ZEW sentiment due 10am.

 

US dollar

The dollar traded in a very tight range yesterday as most US markets were closed for the Martin Luther King bank holiday. Despite the surprise overnight news that China had cut interest rates to try and help stimulate their slowing economy, US Bond Yields continue their relentless march upwards, now hitting a fresh 2-year high. There is now a real tangible concern amongst market participants that the Fed’s monetary policy inaction to date, will mean they will have to play catch up and could well be forced into raising rates further and for longer than previously anticipated as rising inflation continues to haunt the Central Bank. Markets await next week’s key FOMC interest rate-setting meeting for further clues as to future policy tightening.

No major economic data is scheduled for this week.

 

Market rates

Today's Interbank Rates at 07:57 against sterling movement vs yesterday.

Euro €1.196 ↓
US dollar $1.364 ↓
Australian dollar $1.894 ↓
South African rand R21.09 ↑
Japanese yen ¥156.7 ↑

Have a great day.