Market Update

The Pound has faced its third week, in succession, of gains against the US Dollar following the Bank of Englands decision to hike interest rates, a long awaited agreement with the European Union surrounding a fisheries deal and a surprisingly lower than forecasted non-farm payrolls in December.

The US Dollar fell by over 0.5% on Friday against its peers due to the first release of Non-Farm Payrolls of 2022 which missed expectations massively with an addition of 199,000 jobs in December, a difference of -201,000 against the forecast of 400,000.  However, the unemployment rate came in lower at 3.9% against the 4.1% forecast and wages rose by 0.6% which certainly held the US Dollar up following a considerably low non-farm payrolls reading.

Decembers job report seems to have increased expectation of an interest rate hike as pencilled in by the Fed in its upcoming March decision. Traders and investors are preparing for three interest rate hikes this year as the Fed continue to battle surging inflation and consumer prices. 

The Euro rose by over 0.6% as it strengthened against the US Dollar following the jobs data release but showed very little reaction to rising inflation, at 5% for December in the Eurozone. Unlike the Bank of England and the Federal Reserve; the European Central Bank are not foreseeing a need to hike interest rates in 2022 and are predicting inflation will return to pre-pandemic levels throughout the course of this year.

The Eurozone will publish its unemployment rate for November at 10am on Monday. With a forecasted marginal drop of 0.1% at 7.2% against previous reading of 7.3%. 24 hours later, European Central Bank President, Christin Lagarde will speak at the virtual Change of office ceremony at Deutsche Bundesbank and will be carefully watched after Decembers record breaking inflation release.

Following Lagardes speech on Tuesday morning, Federal Reserve Chair Jerome Powell will also conduct a testimony where comments surrounding jobs reports and future interest rate hikes may impact the US Dollar. Inflation numbers for the US will be released on Wednesday 12th January where the  core inflation rate year-on-year for December is expected to rise from 4.9% to 5.4% and inflation rate year-on-year is expected to rise to 7%, up 0.1% in comparison to the previous reading. As historical readings of higher inflation has supported and strengthened the US Dollar; should Wednesdays releases come out as forecasted, we could well see the USD strengthen.

Gross Domestic Product (GDP) figures for the UK will be released on Friday. Although no forecast has been published; the Pound may well react depending on the release. The GBP is relatively strong against major currencies and this may continue this week.

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