Hikes on the horizon?

GBP
Sterling softens

The Pound softened last week, falling against both the Euro and the US Dollar. Last week saw UK inflation data released, which jumped above expectations, with the core measure reaching 4.2% and the non-core value hitting 5.4% in December—the fastest pace of inflation for three decades. In UK politics, the week ahead is an important one for British Prime Minister Boris Johnson, with his leadership in the balance and a potential confidence vote on the cards. UK manufacturing and services data released today came in below estimates; the Confederation of British Industry will release sales and industrial data later in the week. 

EUR
ECB lagging behind

Against the Euro, the Pound ended six weeks of gains and closed 0.23% softer. Against the US Dollar, the Euro has been drifting lower following comments from the European Central Bank. ECB President Christine Lagarde spoke at the World Economic Forum last week, saying once again that the central bank believes inflation will fall this year—the reason for no policy action. She also stated that many European economies are lagging behind the US. Meanwhile, Covid cases continue to hit highs throughout Europe. In the week ahead, manufacturing and services data will be out for both the Eurozone and Germany.

USD
Fed in focus

Last week, the Pound ended a four-week run of gains against the US Dollar and closed the week 0.91% lower. This week, the Federal Reserve will be in focus as markets anticipate the tightening of monetary policy until inflation levels—which are currently at 40-year highs—are under control. Markets are expecting four interest rate hikes this year, with some predicting a fifth. Meanwhile, the Omicron wave in the US is expected to be peaking. Manufacturing, services, and growth data will be out this week. Wednesday will be the day the Federal Reserve provides its latest update on monetary policy.

AUD and NZD
Inflation data ahead

After three weeks of gains, the Pound to Australian Dollar exchange rate failed to break through the 1.90 figure and closed 0.43% lower. Meanwhile, against the New Zealand Dollar, Sterling closed higher for the fourth consecutive week by 0.53% and extended its highest level since August 2020. New Zealand will see the release of Services, Trade Balance, and Inflation Rate data. Meanwhile, Australian Inflation Rate data will also be published, as well as Westpac's Leading Index, which looks at economic activity.

CAD
Hikes on the horizon?

The Pound to Canadian Dollar exchange rate closed 0.53% lower last week and touched five-week lows. Last week, Canada's core inflation number jumped to 30-year highs at 4.00%. In the week ahead, the Bank of Canada's interest rate decision and Monetary Policy Report release will be the most important event, especially in light of recent inflation numbers. Economists expect the central bank to keep rates on hold at 0.25%, but some have suggested the bank could begin hiking rates sooner rather than later.