ACM Update 17-01-22

Written by: David Comber
Date posted: 17-01-22

So here we are, Monday 17th January, or to use its proper name, “Blue Monday”. In the UK, this is supposedly the most depressing day of the year due to the lousy weather & long nights, plus the financial hangover from the festive period.

GBP continued to make gains versus the Dollar and keeps knocking on the door of 1.20 versus the Euro. The next Bank of England rate rise might not be too far away, so will the positivity continue?

It was a blue week for Boris Johnson last week too, as he faced an onslaught in the House of Commons about Conservative party parties, then had to isolate for a week after a member of his immediate family tested positive for COVID-19. There were repeated calls (some from senior members within his own party), for the PM to resign over a Downing Street party in the first lockdown back in May 2020.

The headlines didn’t seem to hamper sterling too much though, with GBP-USD hitting the highest levels since the end of October in the mid-1.37s before some profit taking late on Friday afternoon saw a dip back into the 1.36s. COVID case rates in the UK dropping off sharply this week have definitely supported sterling too. The chart below shows the picture from last week:

GBP-USD movements last week

Over in the US, figures released last week show that year on year inflation is now running at 7%, its highest level since 1982. Most analysts expect this to start to slow soon but to remain at a high level for the foreseeable. The American jobs market has slowed also, with the non-farm payrolls miss of ten days ago, compounded by a higher-than-expected unemployment claims figure last week (230k versus 199k exp.).

Core retail sales took a hit in December too, with a month on month drop of 2.3% falling a long way short of the forecast 0.2% growth. The majority of figures suggest that consumers were wary of heading out onto the high street, as the omicron variant swept through the US in December. Overall we are 4.4% up for GBP-USD in a little over three weeks, presenting a great buying opportunity for Dollar buyers.

For Sterling-Euro the picture has been a lot quieter recently, leading to a stalemate at just under 1.20. In fact, the entire range of movement on the pair was 0.45% last week, incredibly narrow trading. With very little activity from the European Central Bank and psychological resistance of 1.20, the pair may remain flat here for now until we see some sort of major event/data release either way. The recent movements (or lack of them) can be seen in the chart below:

GBP-EUR remained steady last week

Looking ahead, the main topics will continue to be related to COVID, either directly or indirectly. Case rates dominate the short term headlines, whilst inflation concerns and how to manage them are the focus of the Federal Reserve, ECB and Bank of England. Another interest rate rise at the start of February from Andrew Bailey & co. seems a distinct possibility to control the beast that is inflation.

Notable events this week:

Monday – US bank holiday for Martin Luther-King day

Tuesday – UK unemployment & claimant count data, the former expected to remain stable at 4.2%.

Wednesday – UK CPI inflation. Expected to show 5.2% year on year inflation, but the last two months have been well above this figure. A high number will increase the chances for a February interest rate rise from the Bank of England. Andrew Bailey also speaks at an event in the afternoon.

Friday – UK retail sales. Will the British public have kept off the high street like those in the US during December?

So, GBP-EUR continues to hover. Sterling Dollar marches onwards. Will the Federal Reserve blink yet on interest rates later this month, or does the Bank of England have another hike in them at the start of February? Or will both happen?

A tough picture at the moment. Please make sure to reach out to the team with any pending requirements. Volatility on GBP-USD over the last month shows what can happen even in a short period of time.

Have a great week.

David Comber