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Annual Growth in the UK the Quickest since WW2

Yesterday, following the Bank of England (BoE) Chief Economist’s slightly dovish comments on Wednesday, the market was looking to Gov. Bailey for further guidance on the direction and pace of monetary policy. However, during his speech there was no reference to monetary policy.

This morning the UK GDP numbers have been released, looking at economic activity, on the monthly, the headline quarterly and annualised basis. On the annualised basis, growth saw the quickest pace of growth since WW2. The British economy grew 7.5% in 2021 (official figures revealed Friday) rebounding from its historic 9.4% plunge in 2020 when pandemic restrictions stifled activity. On a quarterly basis, the flash reading is estimated to have increased by 1% in the final three months of the year, down slightly against forecast whilst the monthly figure showed that economic activity for December contracted but that is not surprising given the onset of Omicron.

The GDP was the main release of the day for the UK with no major data to follow.

Dollar Climbs Higher Following Stronger than Expected Inflation Data and Interest Rate Bets

The US Dollar climbed higher on Thursday following the release of January’s Consumer Price Index (CPI) inflation data. US inflation hit an annual rate of 7.5% in January, accelerating at its fastest pace since 1982 and 0.2 percentage points above market expectations. The initial market reaction saw the Dollar come under pressure as Treasury yields soared higher across the curve. The benchmark US 10-year Treasury yield spiked above 2% for the first time since 2019, meanwhile the 2-year note yield hit 1.64% which was sharply higher from 1.35% prior to the release. The spike in yields came as investors began to speculate over as many as seven rate hikes in 2022, up from an expectation of five hikes prior to the release. Volatility across the bond market continued later in the session after Federal Reserve (Fed) official James Bullard commented that the Fed should hike by 100 basis points at their next three meetings, while raising the suggestion of an additional hike in rates between meetings. Economists are now increasing bets of a 50-basis point hike in March.

It’s a quiet day ahead for the economic calendar releases, however markets will review the University of Michigan consumer sentiment data later in the session.

Eurozone Inflation To Remain Above 3% Until Q3 Predicts Commission

The Euro was once again confined to relatively tight ranges following another baron day for Eurozone economic releases. We did see some volatility in EUR/USD because of the US CPI data which did drop below $1.14 in the immediate aftermath of the release but proved to be a short-term move with the pair recovering back in the top half of $1.14-1.15 by close of play.

The European Commission have lowered their growth forecasts for the EU in their latest EU Economic Forecasts release yesterday. The Commission have predicted that growth this year in both the EU and Eurozone would underperform previous predictions, expanding by only 4% in 2022 compared to 4.3% last autumn. Output growth would slow to 2.8% in 2023 in the EU and 2.7% in the Eurozone. The report also predicted that inflation would surge to 3.9% in the EU and 3.5% in the Eurozone in 2022, exceeding previous predictions, before retreating towards the 2% inflation target in 2023. The commission predicts that inflation will peak in Q1 2022 and remain above 3% until Q3 2022 citing the core driver being energy price growth.

Looking ahead at today, German Final CPI month-on-month has already been released and read in line with consensus and previous month’s level of 0.4%. There is no other economic data due today from the Eurozone to provide much direction for the single currency.

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