IFX Market Report: Tuesday 18th January 2022

After an impressive rebound on Friday, the Dollar proceeded to edge higher on Monday “as traders continued to hold on to Dollars but took the view that Federal Reserve tightening plans were largely priced in”. The US Dollar Index (DXY) looks able to advance for it’s third consecutive session on gains today amidst “the renewed sentiment towards the buck and the relentless move higher in US yields across the curve”.

The Pound on the other hand, saw its early gains evaporate on Monday as “investors consolidated bets ahead of a Bank of England meeting next month where it is widely expected to raise interest rates”. Money Markets are at present pricing in one rate hike by next month and one full percentage point increase in interest rates by the end of 2022. In regard to economic data, recent releases have “raised expectations the British economy is rebounding strongly from pandemic”. November’s GDP figures showed that the UK economy is “bigger than what it was before the first COVID-19 lockdown in 2020”. GDP YoY beat expectations by 0.5% by coming in at 8.0%, and the 3-Month Average also surpassed forecasts coming in at 1.1%. As for today, UK Labour data was mixed. While Novembers Unemployment Rate dropped by 0.1% to 4.1%, Employment Change wildly missed forecasts by printing an actual reading of 60K.

GBPUSD had rather uneventful session on Monday – opening at 1.3677 and closing at 1.3654.

GBPEUR made subtle gains yesterday. The pair opened at 1.1967 and closed at 1.1971.

EURUSD dropped off as the Dollar gained more ground. The pair started the session at 1.1428 and closed at 1.1405.

On the data front, still to be released today are Eurozone and German ZEW Economic Sentiment Index’s for January. Then in the afternoon from the US, NAHB Housing Market Index is due at 15:00, followed by Net Long-Term TIC Flows at 21:00.

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