Currency Note

Pound strong ahead of GDP data

By Alex Bennett January 10th, 2022

Sterling is trading near a 2-year high against the euro and has reached a 9-week high against dollar this morning, after a resilient first week of 2022.

There will be a series of UK data releases on Friday this week, including UK GDP figures for November, which are expected to improve slightly month-on-month. However, any surprises could impact sterling.

In the meantime, the pound is likely to react to any COVID-19 related news and respond to general market sentiment.

December’s inflation data will be released for the US on Wednesday and the markets will be watching closely to see if this could impact the Federal Reserve’s approach to interest rates. Several Fed officials will speak following the event.

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GBP: GDP figures due on Friday

The pound is still strong against both the euro and the dollar this morning, following a resilient week.

It’s a quiet week for economic data until Friday, when GDP, industrial production and balance of trade figures will be released. Until then, the pound is likely to continue to react to overall market sentiment, Omicron news and Brexit news.

GDP is expected to have improved month-on-month in November, although the markets could be more interested in December’s reading, as this will show the impact of the spread of the Omicron variant on the economy. The sharp drop in December’s PMI data, revealed at the end of last week, could foreshadow December’s GDP results.

GBP/USD chart over past year

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EUR: ECB officials to speak this week

The euro is weaker against the pound but found some strength against the dollar at the end of last week, which it has mostly maintained this morning.

There are several events coming up this week that could impact the euro’s strength, including unemployment figures later today, industrial production data on Wednesday and several speeches from European Central Bank officials, including President Christine Lagarde.

The unemployment rate for November, which will be released this morning, is expected to show a slight drop month-on-month as the labour market continued to recover from the pandemic.

USD: US inflation on Wednesday

Despite being weaker against the pound and euro, the dollar is edging higher against a basket of currencies this morning ahead of US inflation data this week.

December’s inflation rate will be revealed on Wednesday, which is expected to rise about 7% year-on-year. This could provide fresh impetus for the Federal Reserve to hike interest rates earlier than expected. There will also be speeches from several Fed officials after the event and the markets will be listening closely for comments about monetary policy.

The week will finish with the release of US retail sales for December, which are expected to show a decline due to surging Omicron cases.

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