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UK Retail Sale Post Positive Reading. Can This Continue?

Yesterday was a quiet day in terms of economic data, however, despite that we continued to see Sterling gain momentu as it remained above key technical levels. Much of this is due to growing speculation that we could see a 50-basis point hike in March as we continue to see inflation rise and is expected to peak at 7% due to the well-documented energy price hike in April. It should be noted that 4 out of the 9 members of the Bank of England’s (BoE) Monetary Policy Committee (MPC) voted for a 50-basis point hike in January. With inflation forecasted higher will they vote for a 50-basis point hike in March?

This morning we saw the UK retail sales posted. UK retail sales data for January showed a 1.9% rise in monthly sales. That was a sizeable rebound but still, only partially offset the 4.0% decline in December, but not totally unexpected given the easing in restrictions. Next week’s update for consumer confidence in February may provide interesting to see if we can expect this uplift to continue amidst a high inflation environment. In addition, we have the quarterly Treasury Select Committee hearing. The BoE Governor and several MPC members testify on inflation and the economic outlook before Parliament’s Treasury Committee which could provide some insight for the market.

Greenback Remains Subdued as Markets Mull Over Geopolitical Tensions

The Dollar continued to trade within narrow ranges on Thursday following increased uncertainty on Wednesday’s trading. Financial markets remained subdued throughout the day as US Secretary of State Antony Blinken agreed to meet with Russian Foreign Minister Sergi Lavrov, raising hopes of a de-escalation of the rising Russia-Ukraine tensions.

In yesterday’s data releases, the Dollar came under some pressure as it was reported that housing starts in the US fell by 4.1% month-on-month in January, which is a seasonally adjusted annual rate of 1.63 million and well below forecasts of 1.7 million.  Meanwhile, the Philadelphia Federal Reserve (Fed) Manufacturing Index dropped to 16 in February from 23.20 in January and below the market consensus of a reading of 20.0. The weekly jobless claims figure increased to 248,000 from a revised 225,000 in the previous week and above the consensus forecast of 220,000.

In the US today, January existing home sales are scheduled for release on a light economic calendar. The figures are set to show a drop in home sales for a second consecutive month. Elsewhere, several Fed officials are set to speak and will provide fresh comments around the pace and timing of rate hikes.

Market Continues to Speculate on ECB Policy Change

The Single Currency continues to bear the weight of the Ukraine-Russian tensions. The focus was on comments from European Central Bank’s (ECB) Chief Economist Philip Lane. Previously Lane had dismissed the notion of a new era for inflation until recently, but he has been revising his view, setting the stage for a policy shift at the ECB after nearly a decade of ultra-low interest rates and massive bond purchases.

The ECB is under market pressure to raise rates on bank deposits, currently at -0.5%, in the face of stubbornly high eurozone inflation. This hit 5.1% in January, well over twice the ECB’s 2% target. However, the ECB is firmly behind the interest rate curve of the UK and US. Lane said the pace of any policy change would depend on whether the ECB expected inflation to settle below, at or above 2%. The March ECB meeting will provide the market with an update on its forecast for growth and inflation.

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