Good morning,

Sterling had a third successive day of gains against the US dollar and at the time of writing trades at 1.3540, a one week high; against the euro it hovers around the 1.20 marker ahead of Thursday’s Bank of England meeting.

The British pound has been bought by investors in anticipation of a second Bank of England rate hike in a few months, to raise the interest rates from 0.25% to 0.5%, at its upcoming monetary policy review on Thursday. This would mark the first back to back interest rate rise since 2004. Strong UK Manufacturing PMI also boosted the pound yesterday as the figure came in at 57.3 versus an expected 56.9.

Although mounting pressure on Boris Johnson to resign and acceptance that the Fed will likely tighten its monetary policy at a faster pace might hold back GBP seeing significant gains. Markets have priced in a Fed rate raise in March, with speculation mounting it could be 0.5% to contain inflation, and the potential for a further 4 rate hikes by the end of 2022.

Euro has gained more than 1% against the USD since the beginning of the week as markets await EU inflation data that is released today and then focus will shift to the US employment figures with the release of the Nonfarm December Payrolls report on Friday.

Have a good day.

Joseph Sidders, Relationship Manager.

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