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US gears up for rate hikes

US gears up for rate hikes

UK construction PMI beat expectations as stronger growth in the commercial sector offset a slowdown in the residential sector. Bank of England Governor Andrew Bailey risked being cancelled like Jimmy Carr when he repeated his call for restraint on pay rises. Huw Pill, BoE Chief Economist, reiterated that further gradual interest rate increases were likely if pay pressures persist. 

Sterling failed to make headway as the market doubted whether the Bank of England would push ahead with sustained rate increases, and also concerns for the growth outlook. The Pound dropped near to 1.3500 against the dollar before recovering while the Euro posted a further strong recovery to near 1.1835 in light of the more hawkish ECB rhetoric and expectations of higher yields.

US non-farm payrolls increased to 467,000 in January, smashing expectatyions of 150,000 and December’s figure was increased to 510,000, up from 199,000. The market took note of strong wages data leading the futures market to price in a 100% chance of rate increases for March and May with over a 50% chance of five rate hikes by November. The dollar posted strong net gains after the data but failed to sustain the advance with the bouncing to the 1.1450 area at the European close. 

There was little change at market open this morning as Sterling traded around 1.3530. The Euro edged lower against the Dollar, near 1.1430 with a slight recovery in commodity currencies.

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