Jamie Jemmeson
January 11, 2022

Sterling Holds its Ground

It was a quiet day for the UK with no major data hitting the wires, but the Sterling managed to hold firm against its counterparts on the ongoing optimism that further restrictions will be avoided. Overnight there were some positive data releases, highlighting that consumer spending remains solid. British Retail Consortium sales data recorded an increase in (like-for-like) retail sales of 0.6% in the year to December against an expectation of 0.3%. In contrast, Barclaycard recorded a 12.2% increase in spending compared to December 2019. 

The rest of today’s data calendar is light with no further releases in the UK. The market may keep an eye on the UK political situation moving forward as more evidence emerges regarding the ‘BYOB’ party at 10 Downing Street during the lockdown. 

Markets Await Federal Reserve (Fed) Chair Powell’s Testimony 

The US Dollar was relatively unchanged on Monday as traders await Fed Chair Jerome Powell’s comments before the US Congress today. Investors expect his commentary to follow a hawkish tone after the release of the Fed’s December meeting minutes where policymakers discussed reducing its balance sheet, and the possibility of three rate hikes this year. Investors will also be on alert during Powell’s testimony for the timing of lifting rates with economists pricing the first-rate hike in March.

Elsewhere, the markets will look forward to Wednesday’s release of the Consumer Price Inflation (CPI) with expectations for the headline to read above 7% having reached 6.8% in November. The print will provide short-term direction for the US Dollar as Jerome Powell cited higher headline inflation rates and a robust labour market as key conditions for a faster pace of policy tightening.

Today, the focus will be given to the NFIB Small Business Index for December where investors will look for further improvement from the modest gains made in November. The report also highlights labour shortages and rising wage pressures. Fed speakers Bullard, George, and Mester are scheduled to speak this week and attention will be given to suggestions for faster policy action from the Fed.

Will Lagarde Provide Further Clues on Policy?

Eurozone Sentix Investor Confidence Index read above the forecast yesterday, strengthening to 14.9 for January from 13.5 in December suggesting an increase in investor confidence in the bloc. Change in Eurozone unemployment remains constant, reading in line with the expectation of 7.2% while the monthly Italian unemployment rate read below expectations at 9.2% versus 9.3% and 9.4% previously. 

Despite the positive data, the Sterling made healthy gains against the Euro pushing towards the key €1.20 level and achieving the highest rate for GBPEUR since February 2020. But this was mostly due to markets beginning to price in four interest rate hikes by the Bank of England (BoE) while the financial markets suggest that the bank rate could close as high as 1.25pc this year.

Looking ahead to today, European Central Bank (ECB) President Christine Lagarde is due to speak this morning at the virtual ceremony to mark the President of the Bundesbank’s change of office.

Elsewhere, the Italian retail sales month-on-month figures are due to show a slight increase in the reading from 0.1% to 0.3%.

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