There was very little data released yesterday and as a result movements on the pound were very limited.
The only thing to note was the latest Reuters poll with regards to thoughts on the outcome of Wednesday’s Quarterly Inflation Report.
Out of the 27 economists polled, 25 thought that the BoE will overhaul the current Forward Guidance plan, where a rise in interest rates would only be considered once the UK unemployment rate fell below a 7% threshold. A rise in interest rates would make the pound stronger.
16 of the 25 are expecting the BoE to make a stronger verbal commitment to low interest rates and beyond that there are some thinking that the unemployment threshold may be lowered to 6.5%.
Overall, it would appear that sentiment in the market is for the BoE to dampen recent speculation that an interest rate hike may occur very soon given the improvement in the UK economy.
In overnight news, the British Retail Consortium revealed that retail sales grew in January by 3.9% from a year earlier after increasing by 0.4% in December. The data adds to evidence that the recovery is gaining momentum, but so far has little impact on the pound. Clearly investors are more worried by tomorrows Inflation Report.
In the absence of any data, the US dollar continued to lose ground against most of its peers following Friday’s disappointing payroll figures. As a result thoughts towards further tapering of the Federal Reserve’s US$65bn monthly bond buying program may be put on hold following the last two months disappointing payroll figures.
The main event today will be Janet Yellen’s first testament as Head of the Federal Reserve. Markets will be looking to take cues on comments made about the US economy, tapering of quantitative easing as well as the upcoming deadline for the debt ceiling; before deciding what position to take on the US dollar.
15.00pm – USD – Fed’s Yellen Speech.