As expectations grow concerning the BoE’s plans about interest rates in its forthcoming meeting, the GBP has been performing excellently compared to other currencies. The GBP/USD is near a 60-day peak as it rises close to the 1.3610 levels, while the GBP/EUR is close to setting a new peak in the last 23 months. The ING predicts that the EUR/GBP will keep leaning towards the 0.8271 range.
The USD Retreats
Unemployment data beat predictions for December (was around 199K), decreasing from the revised 249K data for November. The unemployment rate reduced to 3.8% from 4.3% for November (its lowest in 10 months). According to household data, the employment rate rose to nearly 660K for the month.
This data suggests that the employment rate is gradually growing as more businesses seek more workers. Also, average earnings surpassed expert predictions; it was 0.65% against the predicted 0.45%. Despite strong overall data, the dollar still retreated after the release of the non-farm rolls data as short-term investors were hoping for stronger data.
One of BDSwiss group’s top-level executives, Marshall Gittler, opined that there was more labor shortage than the available work. He further claimed that more people are now unwilling to work. Consequently, there are indications from the futures market that a march rate increase is more imminent than had been previously forecasted.
Nordea suggests that the Fed should take a tough stance, saying, “the boost in employment rate should give the Fed a strong reason to increase interest rates over the next two months during the next FOMC meeting.” Gittler also said, “a tightening is now more likely as the NFP data was strong enough, the unemployment rate is decreasing, and the growth rate in average earnings is still on the rise (+4.8% YoY).”
Markets, Disruption, And Inflation
Currently, the market is least affected by the rising omicron cases. It is focused on the long-term consequences of inflation instead of its short-term disruption. Before the release of the CPI inflation rate on January 12, many experts predicted that the rate would likely hit a new 35-year peak of 7.5%.
ING remarked, “the hawkish theory might still come to pass as Fed chair Powell speaks to the senate during his re-nomination process. Also, Mester and George, two of the top-fed hawks, will be speaking tomorrow.” Qi Gao (Scotiabank’s forex analysts) expects the DXY to be boosted by Powell’s speech at tomorrow’s Senate hearing.
UK Firms Looking Beyond Omicron
A recent Deloitte survey showed that 38% of CFOs plan to raise their investments this year compared to last year’s 20% of CFOs. It is the first time in over a decade that this many CFOs have plans to increase their investment. Deloitte’s Ian Stewart remarked that “it is a sign that CFOs are planning to improve their businesses this year and not worry about omicron.”
Part of the poll results showed that many firms fear that there won’t be enough labor to fill the vacancies available. Similarly, a Make UK survey revealed that 74% of producers are optimistic about the business environment for this year, while 79% are optimistic about production levels. However, most of the polled businesses remained concerned over trade conditions, with nearly 69% of them worried that Brexit will negatively impact their business operations.