Sterling looking to bounce back

GBP

The pound made some small gains at the beginning of the week, which has been largely due to expectations that the Bank of England’s surprise decision to keep rates on hold will not be repeated over the next few months. Governor Bailey further suggested an imminent rate rise yesterday saying the central bank will act to curb inflation pressures.

USD

The dollar has come off fifteen month highs at the beginning of the week following the strong US jobs data at the end of last week. Markets are now looking forward to inflation data and any hints from Federal Reserve members on upcoming rate policy.

At last Wednesday’s meeting, the Fed stuck to its belief that the current high levels of inflation are transitory. They would be waiting for more job growth before hiking interest rates.

Friday’s US data then showed employment increased more than originally forecasted. Yesterday, Fed’s Vice Chair Richard Clarida said conditions for a rate hike could be met next year with job growth expected to continue and inflation already going beyond comfortable levels. St Louis Federal Reserve Bank President James Bullard also stated he believes the Fed need to raise rates twice next year. The next test for the wait-and-see approach from the Fed will be US CPI data on Wednesday.

Key announcements

13.00 – ECB President Lagarde speaks
14.00 – US Fed Chair Jerome Powell speaks
15.00 – Bank of England Governor Bailey speaks