Currency Note

Expectations increase for Bank of England interest rate rise

By Alex Bennett January 20th, 2022

The pound is still strong against the euro this morning due to increasing expectations of an interest rate hike from the Bank of England. Data yesterday showed that inflation reached a 30-year high in December, which could give officials fresh impetus to raise the rate at their meeting in February.

Inflation figures for the eurozone will be released later this morning and the euro could be impacted by any surprise numbers. President of the European Central Bank, Christine Lagarde, will speak tomorrow following this.

The Prime Minister announced yesterday that workers are encouraged to return to the office from today and ‘Plan B’ measures will be dropped from next Thursday, with an end to mandatory mask wearing and Covid passports. This comes amidst ongoing political turmoil in Downing Street.

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GBP: Pound still strong due to expectations for interest rate hike

The pound is still strong against the euro this morning and at fairly strong levels against the dollar due to increasing expectations that the Bank of England will raise interest rates next month.

The market odds of an interest rate hike on February 3 rose to 90% after inflation figures for the UK were released yesterday. They showed that inflation rose to a 30-year high in December, with rising prices across the board. In order to control high inflation, the Bank could raise interest rates soon.

Political turmoil continues in Downing Street, with an unknown number of Conservative MPs submitting letters for a vote of no confidence in the Prime Minister. The House of Commons is still waiting Sue Gray’s official report on the illegal gatherings at number 10.

GBP/USD chart over past year

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EUR: Eurozone inflation due today

The euro is weak against the pound but has started to gain some ground against the dollar this morning.

The single currency could be impacted by inflation figures for the eurozone, which are due to be released later this morning. Inflation is expected to have increased to 5% in December from 4.9% in November. Any surprise outcomes could cause the euro to respond.

Following this, there will be speeches from European Central Bank officials tomorrow, including President Christine Lagarde.

USD: Dollar weaker ahead of employment data

The dollar is slightly weaker this morning after rallying earlier this week due to rising treasury yields.

Jobs data and home sales figures will be released for the US today. The number of Americans filing jobless claims are predicted to have fallen slightly in the third week of January.

In a recent news conference, President Biden said that he thinks Vladimir Putin is set to “move in” on Ukraine and said that Putin would pay a “serious and dear price” if this happened. However, he also stressed that he does not want a “full blown war”.

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