ACM Update 14-02-22
A much calmer week across a lot of the majors last week, when compared to the week before. UK economic data for 2021 showed a strong rebound, but still behind pre-pandemic levels. This week we find out if UK inflation is still inflating…
UK house price data on Monday from Halifax showed a further record high despite a slowdown in January. Figures estimated a growth of 0.3% in January and 10% year on year, but concerns remain that inflation will cool the housing market throughout 2022. More to come on that.
GDP figures for the UK released last week show the economy grew by 7.5% during 2021. This was the largest of the G7 nations and is the quickest pace of growth in the UK since 1941. The reality check though comes in the form of the 9.4% drop the previous year, meaning we are still not yet back at pre-pandemic levels. The figure did boost sterling on Friday morning though, reclaiming some of the ground lost the week before. The week’s much calmer chart for GBP-EUR can be seen below:
The week ahead is a busy one for UK data, with unemployment & claimant count figures on Tuesday. With the economy getting back into full swing, the former is expected to hold at a healthy 4.1%. Wednesday is the significant one as far as upcoming monetary policy is concerned, with UK inflation data for January. Expectations are for this to remain at 5.4%, but four out of the last five months have been well over expectation (and the outlier was skewed by the ending of the “Eat Out to Help Out” scheme). Call me a cynic, but I feel this one is likely to be another overshoot. Good for sterling sellers and anyone hoping for another interest rate rise in March.
The US was the busiest in terms of data last week as their own inflation balloon continues to expand. Annualised inflation in January is now running at 7.5% up from 7% in December, another 40-year high for this figure. The Fed are likely to take swift action in their next monetary policy meeting on 15th & 16th of March, potentially with a 50-basis point rate hike. Goldman Sachs are now predicting seven rate rises during 2022. We could well see a resurgent Dollar due to all the inflationary pressures. The inflation figures caused volatility on Thursday afternoon, as demonstrated in the chart below:
As for the Eurozone, the ECB are being left out in terms of interest rate rises at the moment. The Fed and Bank of England are sailing off into the sunset hand in hand, with Lagarde and co left with a table for one on 0% (tenuous Valentine’s Day pun). Lagarde did admit last week though that she no longer sees inflation coming back down to the 2% target during 2022. Hardly breaking news admittedly, but it does open the door for an interest rate rise from the ECB later in the year, with some analysts forecasting June as an expected timeframe.
The week ahead:
Monday – Lagarde testifies on the ECB’s annual report to the European Parliament (4:15pm UK)
Tuesday – Australian monetary policy minutes (12:30am), UK unemployment & claimant count data (9:30am), US Producer Price Index data (1:30pm)
Wednesday – UK inflation CPI (7am), US retail sales (1:30pm), Federal Reserve meeting minutes (7pm)
Thursday – Australian unemployment figures
Friday – UK retail sales (7am)
Inflation is dominating financial headlines at the moment. As a result, we have a busy week ahead, especially in the UK and the US. Given the data releases coming up, expect a lot of talk about looming interest rate action on both sides of the Atlantic. This is likely to cause a particularly volatile week for Sterling-Dollar as the respective pieces of data filter through. Do reach out via d.comber@astoncm.com if you have any upcoming requirements dependent on GBP or USD.
Strap in folks, it could be a bumpy one this week.
