Sterling falters as Euro flies
Sterling is likely to face further headwinds going into this week and to continue to decline from earlier this month should the fundamental developments coming out of the UK weigh on interest rate expectations. Consumer Price Index due on Tuesday is expected to show a reading of 0.2% in December, with the core rate of inflation remaining at 1.2%. However, a marked slowdown in Average Weekly Earnings may put increased pressure on the Monetary Policy Committee (MPC) to further delay the normalization cycle as the Bank of England struggle to achieve the 2% target for inflation.
In contrast, US CPI due Wednesday is estimated to uptick, which could further US Dollar strength; and with early signs of increasing price pressure in the US, bets of a second hike for early this year from Janet Yellen could well be on the rise. It must be noted however, that the continued decline in energy prices will no doubt be a concern for the Federal Open Market Committee going forward.
The Euro had an entertaining end to the week as it surged against Sterling Friday afternoon. As the equity markets continue to slip, the view of the Euro as a safe haven currency remains and keeps the single currency elevated. At this current time, it would seem that this strength is here to stay for the near-term at least. However it is common knowledge that the European Central Bank’s (ECB) long-term aim is to weaken the currency with its loose monetary policy to help boost growth. The ECB have expressed their readiness to do more, though it is unlikely any changes to policy will be made this week. There is no economic data of note from Europe today, so we will have to look to later in the week when the ECB release another monetary policy statement.
No notable data releases today.