IFX Market Report: Thursday 24th February 2022

Sterling stuttered once again on Wednesday as notable Bank of England members played down the chance of aggressive rate hikes this year. BoE Governor Andrew Bailey said yesterday that “there were clear risks that inflation could again overshoot the central bank’s forecasts but markets should not get carried away about the likely scale of interest rates”. The BoE forecasts inflation will peak at a 30-year high of around 7.25% in April when a 54% rise in regulated household energy bills takes effect. With rates at 0.5% presently, financial markets “expect the BoE to raise rates to nearly 2% this year” and a 25 basis-point rate hike next month is already fully priced in.

In a separate speech given to the National Institute of Economic and Social Research, MPC member Silvana Tenreyro also called for rate hikes, but cautiously noted that “the extent of tightening needed was uncertain”. Tenreyro claimed that “only a small amount of policy tightening will ultimately be required, reflecting the small share of the overall stimulus in the pandemic provided by monetary policy in the UK”.

After starting the day at 1.3607, Cable struggled in the session, falling below the 1.36 handle by the close. GBPUSD finally finished Wednesday at 1.3560

GBPEUR also recorded a loss yesterday. The pair opened at 1.1999 and closed at 1.1977.

EURUSD also dropped as investors favoured the safe-haven Dollar given the geopolitical situation. The pair started Wednesday at 1.1341 and closed at 1.1318.

On the data front, at 13:30 the US will release its 2nd estimate GDP Growth Rate QoQ for Q4, expected to come in at 7%, with a previous of 2.3%. At the same time, the US will also publish its weekly Continuing Jobless Claims, Initial Jobless Claims, and Chicago Fed National Activity Index for January. Following that, speeches from Fed members Bostic and Mester will be closely analysed.

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