US posts fastest economic growth since 1984
Daily Currency UpdateThe wait for the much anticipated report from civil servant Sue Gray into lockdown parties at Downing Street is still yet to be made public with reports that lawyers, government officials and the Metropolitan Police are reviewing it to see if any redaction's are deemed necessary before it is released. It may be early next week before it is finally unveiled with opponents of Prime Minister Boris Johnson hoping the report will signal the end to the leader’s turbulent time at the helm of government.
The pound seems fairly unaffected by the ongoing uncertainty and it could indeed be beneficial to sterling should Johnson step aside and make way for a successor, with Chancellor Rishi Sunak currently a 2/1 favourite with book makers to be the next occupant of Number 10.
GBP/USD continues to be under pressure with it currently trading under 1.34, although that is more to do with US dollar strength currently permeating the markets. GBP/EUR is taking another look above 1.20 probably buoyed by market expectations that the Bank of England will choose to hike rates again on Thursday. Chances of a hike being announced by BoE Governor Andrew Bailey are around 80-90%, however the pace of future hikes will likely be key to the pound’s direction as we head towards spring.
Key MoversThe US dollar's charge continues unabated at present with extra support given to it by a stellar fourth quarter 2021 GDP release seen yesterday lunchtime. The advanced reading showed a blistering 6.9% annualised increase in growth, its biggest rise since 1984. Super-loose monetary policy enacted to help shelter the world’s largest economy from the impact of Coronavirus and has resulted in a strong bounce-back in the States.
However with inflation at a 40 year high and the Federal Reserve about to embark on an aggressive tightening of monetary policy to control rapidly rising prices, we should expect future growth data to moderate significantly. It should also be noted that the Omicron wave only hit the US in mid to late December so the impact of that on this GDP print will likely be relatively limited and should act as more of a headwind on Q1 2022's number when that is released in April. Global stock markets took a breather yesterday paring some of the losses seen earlier this week however most indexes are back in the red this morning as the markets continue to seek safe haven assets which is continuing to benefit to the US dollar.
It has been a relatively quiet week from the eurozone, however next week sees the European Central Bank’s latest monetary policy decision. The current level of inflation in the eurozone is 5% and ECB chief Christine Lagarde seems in no rush to act to control rising prices just yet, especially as many countries see huge COVID-19 numbers being posted every day. We get the first estimate of January inflation for the bloc on the 2nd of February, one day before the policy decision and any surprise to the upside could see Lagarde's tone turn slightly more aggressive re: the need to act to suppress the uptick in the price of goods and services.
EUR/USD continues to fall with it close to its lowest level since June 2020, currently at 1.1125. The shared currency's plight is not being helped by the ongoing standoff between Russia and Ukraine given Europe’s dependency on Russian energy imports and the impact any conflict could have on this supply.
- GBP/USD: 1.3300 - 1.3460 ▼
- GBP/EUR: 1.1960 - 1.2050 ▲
- GBP/AUD: 1.8900 - 1.9160 ▲
- EUR/USD: 1.1090 - 1.1220 ▼