IFX Market Report: Wednesday 2nd February 2022

Sterling gained further momentum on Tuesday as investors become increasingly confident that the Bank of England will “impose back-to-back rate hikes for the first time since 2004”. The BoE already raised interest rates at December’s meeting, lifting the base rate to 0.25% from a historic low of 0.1%. Since then however, UK inflation has soared to a 30 year high as “higher energy costs, resurgent demand and supply chain issues continued to drive up consumer prices”. Market economists at Dutch bank ING have noted that December’s surprise rate hike indicated that Governor Andrew Bailey “is clearly worried about elevated rates of headline inflation and the risk of a virtuous wage-price cycle”. German Investment bank Deutsche Bank are confident the UK central bank will raise rate this month. Their analysts are expecting a 25-basis point increase on Thursday and for the “Monetary Policy Committee to vote unanimously in favour of such a move”.

GBPUSD was able to reclaim the 1.35 handle on Tuesday. Cable started the session at 1.3482 and closed at 1.3510.

GBPEUR was also able to make solid advances on Tuesday. The pair opened at 1.1976 and closed at 1.2006.

EURUSD in contrast had a rather slow session yesterday – opening at 1.1257 and closing 1.1252.

On the data front it’s a quiet schedule today. At 10:00 the Eurozone will release its latest flash Core inflation rate, expected to come in at 1.9% with a previous of 2.6%. Then at 12:00 the US will publish its latest MBA Mortgage Applications and ADP Employment Change. It’s likely that this data will go unnoticed as markets brace themselves for a string of global central bank meetings.

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