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Markets suggest a 75% chance of a rate hike

Markets suggest a 75% chance of a rate hike

The Pound retained strength last week and has climbed to be 1.50% higher versus the US Dollar this year so far while claiming gains of 0.40% versus the Euro in 2022. Data released last week showed that UK growth reached levels seen before the pandemic in November, placing more pressure on the Bank of England ahead of its next monetary policy meeting in February. However, not knowing the impact of Omicron and the effects of Plan B restrictions could mean that policymaker views are clouded when making monetary policy decisions. Markets are pricing in a 75% chance of a 25 basis-point hike in February. Meanwhile, British politics continue to unravel, with Boris Johnson attempting to gain back some favour by relaxing Covid measures. In the week ahead, UK inflation data will be released, as well as Consumer Confidence and Retail Sales stats. Additionally, BoE Governor Andrew Bailey will speak on Wednesday.

Meeting minutes ahead

Against the Euro, the Pound closed its sixth straight week higher, with GBP/EUR closing 0.17% stronger. Meanwhile, against the US Dollar, the Euro managed to hold at around the $1.14 level as USD popularity declined. The European Central Bank will release its latest meeting minutes on Thursday, following on from comments by President Christine Lagarde surrounding inflation and ensuring it reaches the bank's 2.0% target. Markets are forecasting only 10-basis points in rate hikes this year. Further mask mandates shroud the outlook in the Eurozone as hospitals deal with higher admissions from unvaccinated citizens. Eurogroup meetings have taken place today, and data out this week will include Economic Sentiment stats and Consumer Confidence numbers.

Rate hikes in March?

The Pound to US Dollar exchange rate marked its fourth consecutive week of gains, closing 0.71% higher last week; however, Dollar depreciation appears to have taken a breather. The Federal Reserve is in focus ahead of its monetary policy meeting next week, with a Fed representative suggesting there could be rate hikes in March given the current labour market and inflation readings. Supply chain disruption is a continuing issue in the US, with Omicron causing disruption—it's thought the US is yet to reach its peak, despite how quickly the virus travels and hospital admissions remaining high. Existing Home Sales stats will be out this week, as well as manufacturing data and weekly unemployment numbers.

GBP strengthens against AUD and NZD

Sterling spent its third consecutive week higher against the Australian and New Zealand Dollars last week. GBP/NZD closed the week 0.20% up and extended its highest levels since August 2020. Meanwhile, GBP/AUD closed 0.21% stronger, extending its highest level since August 2021.

This week, New Zealand card spending stats will be released, as well as manufacturing data. Across the water in Australia, highly significant confidence and labour market figures will come to light ahead of manufacturing and services numbers on Sunday evening.

Influential inflation stats ahead

The Pound closed relatively flat last week versus the Canadian Dollar, closing 0.08% lower. Fundamental Canadian inflation data will be released in the week ahead, with expectations to remain around November levels in December. Canadian housing and retail data will also make their way onto the market.