UK inflation hits 30-year highs of 6.2%
UK inflation hits 30-year highs of 6.2%
The Pound had a mixed performance last week, with commodities and monetary policy continuing to be the leading market drivers. The Pound climbed by 2.50% versus the safe-haven Japanese Yen, but finished the week flat versus the US Dollar. On the topic of monetary tightening, the Bank of England may be feeling the pressure of the robust labour market at the moment. However, the central bank took a more dovish stance at its last meeting but should have a clearer picture of the inflation and growth outlook by the time policymakers next gather in May. Last week, UK inflation reached 30-year highs of 6.2% in February, increasing from 5.5% in January. With rising petrol prices, the hospitality sector's VAT returning to 20%, and the April inflation cap taking effect, it's expected households will be squeezed even further. BoE policymaker Ben Broadbent will speak in the week ahead, while UK house prices and mortgage approvals numbers will also be released.
Circumventing sanctions with Cryptos
The Euro softened against the US Dollar last week as the Russian invasion of Ukraine continued to limit any Euro gains. European Central Bank President Christine Lagarde has suggested that some Russians may be utilising Cryptocurrencies to circumvent sanctions; the volume of Russian Rubles to Cryptos has reached the highest level since 2021. Meanwhile, markets are anticipating a swifter rate hike schedule from the ECB, pricing in four 25 basis point hikes this year. In the week ahead, the Eurozone Consumer Confidence, Economic Sentiment, and Industrial Sentiment stats will be out, as well as Inflation Rate and Unemployment Rate numbers. Inflation figures are expected to increase from 5.9% to 6.5% in March, while the core measure—which excludes volatile items such as food and fuel—is forecast to rise from 2.7% to 3.1%. European Central Bank President Christine Lagarde will also make a speech this week.
Sacrificing growth to tame inflation?
The US Dollar was popular in last week's trading, gaining against a basket of other majors as risk sentiment ebbed. Some experts believe the Federal Reserve will be willing to sacrifice economic growth in order to tame inflation, with the potential for a 50-basis-point hike on the table at future meetings. Today, President Joe Biden will release his 2023 Budget speech in which he's expected to boost military and social spending amid the Russia-Ukraine conflict and rising inflation in the US. Some influential data out in the week ahead will consist of CB Consumer Confidence data, Growth Rate stats, the Personal Consumption Expenditure Price Index, ISM Manufacturing, and the Non-Farm Payrolls and Unemployment Rate figures.
AUD and NZD
Q1 sees AUD and NZD rise against GBP
Sterling fell 1.30% against the Australian Dollar last week and has moved lower as of today, trading at levels not seen since January 2021. The pair is down around 6% year to date as higher commodity prices, and lack of geographical proximity to the Russia-Ukraine conflict has helped drive the Aussie Dollar higher. Much like AUD, GBP has performed poorly against NZD in the first quarter of 2022, with the pair down over 4% so far. GBP/NZD fell 0.60% last week while trading around its November 2021 lows this morning.
In the week ahead, Australia will release Retail Sales, Building Permits, manufacturing, and Home Loans stats. It's slightly quieter in New Zealand, with only the Building Permits and ANZ Business Confidence numbers out for release.
Sterling continues its drift lower against the Canadian Dollar, as the Bank of Canada announced last week that its prepared to act forcefully to bring down inflation to its 2.0% target. Markets are expecting a 50-basis-point hike next month; GBP/CAD is down almost 4.5% this year. Canadian Gross Domestic Product data will be released in the week ahead, forecast to come in at 0.2% in January, following on from a previous 0.0% reading the month before. Average Weekly Earnings data will also be released, as well as the S&P Global Manufacturing Purchasing Managers' Index for March. Canadian Building Permits and Average Weekly Earnings stats will also make their way onto the market.