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Big week for GBP ahead, with BoE, CPI and retail sales

Good morning

The US dollar finished last week on a softer footing, perhaps the softer inflation sentiment from Michigan once again gave the markets reason to think the Fed may not need to be quite as hawkish as previously expected. GBPUSD traded up to 1.2850, EURUSD to 1.0970, they are now 1.0930 and 1.2815 respectively. USD didn’t lose ground to yen however, USDJPY now at 141.85 leaving GBPJPY 0181.80 and EURJPY 155.05. GBPEUR now 1.1725 for the record.

It’s a big week for GBP, with inflation numbers in the early hours of Wednesday morning and BoE rate announcement on Thursday, followed up with retail sales on Friday. A 25bps rate rise is on the cards and must be almost fully priced in but I have been asked by a couple of people (and have been unable to answer) whether rate rises are really the right tool to bring inflation down when that inflation is not fuelled by excessive demand but by high input prices.

We haven’t all gone and frivolously turned all our lights and heating on, or decided to buy more food, we are forced to pay more money for that because prices have gone up and we still need to eat and power our homes. To compound the issue by raising interest rates, adding to an already high cost of living, won’t stop us having to purchase the essentials. Just punishing the public further with higher interest rates will put stress on the housing markets, compounding issues further. When many peoples wealth is derived from the value of their home, there is a real issue if prices fall.

I saw online some video footage of the Conservatives enjoying their party over lockdown. I must admit that when news first broke about parties being held I was pretty nonplussed, imagining it was a get together for a few people who had worked tirelessly in the government when everyone else was sitting at home enjoying furlough schemes and working from home. My thoughts have changed completely. Images of a Christmas party with a load of people who I rather hope are not, and never will be, running the country, is not what I thought of when ‘partygate’ first hit the headlines. This was a party through and through.

Now, let’s not be naïve here. I do know people who help get-togethers and broke rules, I am sure we all know someone who did and I am also sure that we haven’t all adhered to every rule all of the time. But this blatant disregard for rules is just downright unacceptable and I’m sure there were members of the public fined for rule-breaking, I trust now that each person present at these parties will face similar fines at the very minimum. I should add that I don’t blame the government for Covid, and in general I think they actually did a pretty decent job of getting us through the tougher times. But this is poor.

It’s a US holiday today and a very light economic calendar so its possible markets will be quieter than normal. We will hear from a few ECB officials after last weeks ECB rate rise. We do also have RBA minutes overnight which should show thinking behind the recent surprise rate rise and maybe give an idea as to whether more rate rises are to be expected.

Finally, I hope you enjoyed a super weekend. We didn’t see any of the thunderstorms that we’d been warned about, we did get a little bit of rain but by the time that arrived the gardening had been done, food and drink had been enjoyed and the bbq had been put away. Those enjoying the IoW festival probably got a bit wet, particularly if they were watching Blondie, but by the time Robbie Williams came on stage the skies had cleared. Guess that’s a perk you get when you love angels instead……

- 12.00 ECBs Lane speaks

- 12.40 EBS Schnabel speaks

- 19.00 ECBs de Guindos speaks

- 02.15 PBoC rate announcement

- 02.30 RBA minutes

- 02.35 RBAs Kent speaks

- 04.30 RBAs Bullock speaks

- 05.30 Japan industrial production

- 07.00 German PPI


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