ACM Update 31-01-22

Written by: David Comber
Date posted: Jan 31, 2022

A turbulent week for Boris last week as he clung on to his role, despite various ongoing investigations. Sterling had a mixed week, hitting an almost two-year high against the Euro, but dropping off sharply against the Dollar.

Most of the GBP-related news last week was firmly focused on 10 Downing Street rather than any market events. Boris Johnson continues to tell us all to await the report into the “partygate” scandal, but the report itself might well disappear. The ongoing police investigation has requested “minimal reference” to the events they are looking into themselves. Was it a party or a business meeting, we may never know…

The only real data release of the week was UK manufacturing figures which fell short of expectations. Analysts are currently looking ahead to the Bank of England meeting this Thursday, with an expectation of a second consecutive interest rate hike. With GBP already having breached (and closed above) 1.20 vs the Euro last week, a rate rise to 0.5% could boost things further. Movements for the week are shown in the chart below:

GBP-EUR movements last week.

In the US, GDP grew by 5.7% during 2021. This was its fastest annual rate in four decades. The final quarter of the year saw year-on-year growth of 6.9%, with the quarter prior to that just 2.3%. This was a contributory factor in the Dollar strength on Thursday, combined with the comments from the Federal Reserve meeting the previous evening.

Interest rates were left unchanged as expected, but the Fed stated that it will “soon be appropriate to raise the target range”. As such, the March meeting is now forecast as a 90% chance of producing an interest rate rise. As in the UK, the plan is for this to cool inflation. Cable moved in a range of 1.5% during the week as a result of the above, as shown here.

GBP-USD had a busy week.

All was quiet on the European front last week with no major releases of note either. There may be more troubled times to come for the bloc though after a report from IHS Markit displayed a slow in growth during January. Figures show an 11-month low and the slowdown is largely attributed to the services sector. Germany continues to lead the rebound, but the spread of the Omicron variant on the continent has hampered the French economy especially, with 4.75m new cases in the last two weeks.

The week ahead:

All week - Chinese new year bank holidays

Tuesday - Reserve Bank of Australia interest rate announcement (3:30am UK)

Thursday - Services PMI figures for UK & Eurozone (8am – 9:30am), Bank of England rate announcement (midday), ECB rate announcement & press conference (12:45pm & 1:30pm)

Friday - US Non-Farm Payrolls (1:30pm)

Do make sure to reach out to the team if any of the events this week are causing you concern as there is plenty of potential for movement, especially on Thursday and Friday.

Have a great week.