Good afternoon,

Sterling hit a fresh three week high against the USD yesterday of 1.3643, but swiftly retreated 0.8% and currently trades at 1.3532, as US inflation comes in stronger than expected.

The US Consumer Price Index (CPI) jumped to its highest level in four decades at 7.5% for January, which surpassed market expectations of 7.2%, and has increased the likelihood of a 0.5% interest rate hike in March rather than a 0.25% raise. The CME Group FedWatch Tool shows that markets are pricing in a 90% probability of a 50bps hike in March compared to 33% a week ago. Furthermore, St Louis Fed President raised his concerns over hot inflation and would support a 0.5% rate hike in March.

Earlier this morning the UK GDP figures were released showing the UK economy grew by 7.5% in 2021 despite falling back in December due to Omicron restrictions. It was the fastest pace of growth since World War II, although it came after a dramatic 9.4% collapse in 2020 due to the pandemic. This made the UK the fastest growing advanced economy in 2021. The UK economy grew by 1% in the fourth quarter of 2021 compared to a 1.1% growth seen in Q3 and 1.1% expected.

The euro has lost traction after to climbing to its highest level in three months at 1.1496 against the USD and later today the University of Michigan will release the flash Consumer Sentiment Index for February.

Have a great weekend.

Joseph Sidders, Relationship Manager.

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