GBP

Sterling has held steady this morning after drifting lower at the end of yesterday.

This morning markets focussed on data releases: UK GDP was expected to show growth picked up in November to 0.4% from 0.1% in October. The reading actually came far stronger at 0.9% for November. We also had UK industrial production and manufacturing released early this morning which came in 1.% from a forecast of 0.2% and 1.1% from 0.2% respectively.

The pound has had a strong start to the year so far with gains against the euro and dollar. Underpinning sterling strength is that the UK will look to have the rate hiking bias over the Fed and the ECB, with speculation that the Bank of England may look as early as next month for its next rate hike.

Even with the political risks from the ongoing Downing Street party scandal surrounding the UK government, the pound has still seemed immune to downward pressure. Boris Johnson has come under increased pressure from opposition parties and some from his own party to resign after it was revealed he attended illegal gathering at Downing Street in May of 2020.

The other plus point for sterling is covid cases look as if they may have now peaked in London and daily positive cases have started to decline. Thursday saw 109,000 cases down from the previous day reading of 179,000 cases. This puts the UK on course to remove all restrictions on the January 26, which in turn could lead to an economic rebound in February.

The risk to sterling’s strength is if the BoE decide not to raise interest rates next month or they provide forward guidance to the market that they should lower their future rate rise expectations.

Key announcements

– ECB President Lagarde speaks
– US Core retails sales m/m Forecast 0.2% from 0.3%
– US Retails sales m/m forecast of 0% from 0.3%
– US Industrial Production m/m 0.2% form 0.5%
– US Consumer sentiment 70.0 from 70.6