IFX Market Report: Monday 24th January 2022

After a volatile week of trading, FX markets calmed on Friday and currencies remained largely rangebound. Looking ahead to this week, the Federal Reserve’s first policy meeting of 2022 starts on Wednesday. The Financial Times reported that the Fed is “set to confirm its plans to raise interest rates in March for the first time since the onset of the pandemic, as the US central bank charts a more aggressive course towards monetary tightening in the face of sticky inflation”. The Fed have become more hawkish as the risks posed by high inflation continue to mount. Fed Chair Jerome Powell recently went as far as describing inflation as a “severe threat” to a “sustained economic expansion and a robust labour market recovery”. The consensus amongst investors was that the Fed would hike rates 3 times this year, but some Fed members have said they would welcome more. James Bullard of St Louis, arguably one of the more hawkish Fed members, said he “supports four rate raises this year”. Christopher Waller even claimed that five rate hikes this year “could be appropriate if inflation remains elevated”.

GBPUSD traded in a tight range on Friday. Cable opened the session at 1.3567 and closed not far off at 1.3559.

GBPEUR also stayed rangebound on Friday. The pair started the day at 1.1969 and closed at 1.1953.

EURUSD opened Friday at 1.1335 and closed the week at 1.1343.

On the data front, it’s PMI day. At 08:30 Germany released its Composite, Manufacturing and Services PMI’s for January. 30 minutes later, the Eurozone printed its January Composite and Manufacturing Flash PMI’s. At 09:30, the UK is due to publish its latest Flash Composite, Manufacturing and Services PMI’s. Across the pond, at 13:30 December’s Chicago Fed National Activity Index will be released. Lastly, at 14:45, the US will print its latest Markit Manufacturing Flash PMI, forecasted at 56.7.

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