The odds on the Federal Reserve raising rates at this month’s meeting are narrowing rapidly. Further members addressed the market with a hawkish tone this week adding to bets that the Fed will raise rates in March. The latest official to boost the Greenback was the normally dovish Lael Brainard. Brainard suggested that conditions may “soon” be timely for raising interest rates. EUR/USD and GBP/USD continued to depreciate this week, with EUR/USD breaking a key psychological level yesterday afternoon.
The economic docket was dominated by data from the UK and Eurozone. Firstly, UK construction PMI met expectations at 52.2 after last month’s decline. Anything above 50 indicates expansion and below contraction. Shortly after, Eurozone inflation exceeded economists’ consensus registering 2.0% for its yearly CPI reading, its highest level since February 2013. The better than expected figure adds to the Eurozone’s inflationary pressures.
The week ends with a host of Service PMI data being released, with the main Services gauge being the UK’s main contributor to the UK economy. Expectations are for this sector to stay in expansion territory at 54.2 but slightly down from the previous reading of 54.5. Fed Chair Janet Yellen speaks later in the evening on the outlook of the US economy. Markets will look for any insight that may be given as to when the first rate increase of 2017 could be.