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On a high

Pricing in a rate hike

This morning, the Pound bounced back versus the US Dollar after registering declines of around 1.20% last week. Against the Euro, Sterling has gained some strength as markets price in an interest rate hike by the Bank of England this week. If policymakers fail to hike interest rates, the Pound could be under pressure. The removal of Covid restrictions is helping to create a more colourful economic outlook, but the publication of Sue Gray's 'partygate' report could create some additional chaos in an already noisy week. In terms of data, the week ahead will see UK housing and shop price ecostats released.

On a high

The GBP/EUR exchange rate has approached levels not seen in five-and-a-half years, at around 0.53% off the interbank level traded in July 2016 post-Brexit. The Euro continued to trend lower last week as monetary policy divergence continued to drive a wedge between the Eurozone and other major economies. The European Central Bank is set to make its latest monetary policy announcement this week with no changes expected. Meanwhile, other central banks such as the Bank of England and the US Federal Reserve are taking action in what some believe is a small window to act. In the week ahead, Eurozone inflation will be released, which will be watched closely by those interested in the Euro.

Non-Farm Payrolls ahead

The US Dollar has been in a strong position recently as investors anticipate an interest rate hike at potentially every meeting this year. Last week, the Federal Reserve's preferred inflation method came in at 4.9% in December, the fastest rise since 1983. It's another highly influential week for the US Dollar, with the latest Non-Farm Payrolls ecostat scheduled to be released on Friday. The US Non-Farm Payrolls data will be of particular interest to the Federal Reserve as it looks to adjust its monetary policy in the coming months. Other data will come in the form of manufacturing and services stats.

May 2020 highs

The Pound to Australian Dollar closed 1.50% stronger and reached its highest level since May 2020 last week. Meanwhile, the Pound to New Zealand Dollar closed 1.53% higher and also reached its strongest level since May 2020. Tonight, Australia manufacturing and New Zealand trade data will be released. In the rest of the week, the Reserve Bank of Australia's interest rate decision will be of interest to many, given the shift in central banks around the world in their approach to monetary policy. The RBA will release its chart pack, and Governor Philip Lowe will make a speech the following day before services and trade stats are out. The week will end with the release of the RBA's monetary policy statement. This week's influential data for the New Zealand Dollar will be labour market stats.

Hikes on the horizon

Last week, the Bank of Canada took some by surprise when it opted to keep interest rates on hold at 0.25%. However, Governor Tiff Macklem announced that the central bank would soon begin hiking interest rates from record lows in a bid to counter inflation. The central bank governor said: 'The message is pretty clear. We're on a rising path. How far and how fast? Those are decisions we'll take at each meeting, depending on economic developments, depending on our outlook for inflation and what we judge is needed to bring inflation back to target.' Macklem also stated that the Canadian economy no longer needed support to cope with the fallout of Covid. There are a number of Canadian data points out in the week ahead, including medium-tier growth and manufacturing numbers, as well as high-tier labour market stats. Bank of Canada policymaker Toni Gravelle will also make a speech this week.