Main Headlines
The Bank of Japan has changed their assessment of inflation risk to “balanced” but only minor revisions to the CPI forecasts mean no change in policy is on the horizon, adding to pressure on the Yen. Good UK jobs data is supporting hawkish BoE bets and the pound, while a light calendar can allow dollar longs to re-emerge thanks to the prospect of Fed tightening.
Markets
GBP
In a trading day starting with general USD strength across the board, the pound is holding up well, helped by some good jobs data released this morning. After showing resilience to the end of the furlough scheme, the UK labour market continued to tighten in November, with the unemployment rate moving a notch lower, to 4.1%. Wage growth decelerated, but not more than consensus and remained above 4.2%.
Analysts believe that the Bank of England’s rate expectations (four hikes by the end of 2022) are overdone, but this morning’s jobs data as well as tomorrow’s CPI data – in their view – are set to do little to challenge the current hawkish bets. Ultimately, this means that the pound’s good momentum, which has remained immune to the UK’s political noise – should remain broadly intact into the 3 February BoE meeting.
EUR
The ZEW survey out of Germany this morning will be a chance to monitor whether the Omicron-impacted outlook for the eurozone has stabilised in January. Even more importantly, it will provide a key gauge of inflation expectations, which peaked in June before decreasing in the latter part of 2021.
However, a new jump in inflation expectations might offer some support to the EUR, although that should prove quite contained given the reasonable reluctance to price in a hawkish shift by the ECB in its upcoming meetings. ECB-Fed policy divergence continues to point to a weaker EUR/USD.
USD
US markets re-open today after yesterday’s holiday closure, and stock futures point at a negative open in US and European equities after a mixed Asian session.
The dollar stabilised after Friday’s recovery against most G10 currencies, although the commodity FX segment was supported with, once again, the oil-sensitive NOK and CAD outperforming the rest as crude prices kept inching higher.
Today, data will be back in focus in the US, with the Empire Manufacturing index for January set to fall due to Omicron impact. Later in the day, we’ll see some housing figures as well as November TIC flow numbers. All in all, the data releases should have a quite contained impact on the FX market today, and the pricing of Fed tightening heading into next week’s FOMC meeting should remain largely unchanged, also given the lack of Fed speakers in the pre-meeting blackout period.
ThinkING Morning Report- 18th January 2022
Today’s Rates
GBP>EUR – 1.1956
GBP>USD – 1.3627
EUR>USD – 1.1394
GBP>CAD – 1.7048
GBP>AUD – 1.8939
GBP>SEK – 12.335
GBP>AED – 5.0034
GBP>HKD – 10.615
GBP>ZAR – 21.045
GBP>CHF – 1.2456
Today’s Calendar
· EUR ZEW Survey – Economic Sentiment(Jan)
· EUR ZEW Survey – Current Situation(Jan)
· EUR ZEW Survey – Economic Sentiment(Jan)
Today’s Highlights
· Forex Today: Dollar extends rebound as US yields advance higher
· EUR/USD Forecast: Euro to weaken further if bulls fail to defend 1.1380
· GBP/USD trades around mid-1.3600s after UK jobs report
· German ZEW Economic Sentiment Index jumps to 51.7 in January, a big upside surprise
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