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Employment Data Surprises Ahead of Bank of England February Rate Meeting

Sterling remained locked in narrow trading ranges on Monday and came under some selling pressure later in the day as investors prepared for a busy week of key data releases. Early on Tuesday, UK employment data surprised to the upside with the UK unemployment rate dropping to 4.1% in November against expectations of a figure of 4.2%. Meanwhile, UK wage data was reported in line with expectations at 3.8%.

The standout data release this week is Wednesday’s UK inflation CPI data, which is likely to set the tone ahead of February’s Bank of England (BoE) Monetary Policy meeting. After the sharp rise in November to 5.1%, its highest level for almost 30 years, it is expected that the annual headline inflation will hold steady from December which is likely to maintain pressure on the BoE to act to curb the rising inflation rate. With gas prices having again moved sharply higher and when the energy cap is removed in April, it is expected that we could see inflation rise above 6%. Another 0.25% hike is currently priced in by economists and a reading above assumptions will underpin expectations of a February hike by the Monetary Policy Committee (MPC).

Following Tuesday’s labour report, markets attention will turn to Wednesday’s key release of Inflation data. Meanwhile, Retail Sales data will provide further insights into monthly consumer spending activity later in the week.

Greenback Consolidates After Quiet Start To The Week

US markets were closed yesterday for Martin Luther King Day. The greenback recovered some losses from Friday trading having ended last week on the backfoot following Federal Open Market Committee (FOMC) Chairman Jerome Powell’s testimony, as he adopted a cautious approach to the Federal Reserve’s (Fed) policy outlook. Elsewhere, stock markets rose yesterday as energy and mining stocks were boosted by rising commodity processes and investors reviewed China’s Q4 GDP Data. The world’s second-largest economy grew at its slowest pace in a year between October to December promoting China’s central bank to cut the borrowing costs for the first time since April 2020.

A quiet start to this week for data releases, investors will look to Thursday’s release of the Philly Fed Manufacturing, jobless claims, and existing home sales for short-term direction.

Euro Struggles For Direction As Investors Wait For ECB Guidance On Rising Inflation Rates

Unfortunately, we have little to write about this morning as yesterday proved to be a very quiet day for the Eurozone with no notable data releases to discuss. As a result, the Euro was unable to advance against its major rivals, remaining range-bound against both the US Dollar and Sterling.

Looking ahead at today, German ZEW Economic Sentiment headlines will give us the first indication of economic activity for January. The expectation is for investor optimism in the single market to improve from 29.9 in December to 32.1 in January. Elsewhere, the Italian Trade Balance is due to show an increase from 3.89B to 4.23B but Euro direction from this release is traditionally muted.

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