USD loses ground

Daily Currency Update

MPC member Pill addressed the money market association of New York University yesterday speaking about the UK economic and monetary policy outlook. His comments suggested that distinctive domestic factors could make UK inflation more persistent after highlighting risks from higher natural gas prices with a tighter labour market, adverse labour supply developments, and goods market bottleneck. The hawkish comments come ahead of the next interest rate decision on February 2^nd with the consensus being a 69% chance of a 50-basis point hike with the remaining votes at 25-basis points. GBP/USD touched a session high of 1.2205 late afternoon on Monday whereas GBP/EUR tried to break 1.1400 late morning, before falling away over the session.

Earlier this morning, U.K. retail sales rose 6.5% last month compared with a year earlier, according to data from the British Retail Consortium and KPMG. However, the numbers are deceptive as the growth in December seems to be due to goods costing more and masks the fact that the volume of goods that people are buying is significantly down on this time last year. Later today we see Bank of England Governor Bailey participate in a panel discussion titled ‘Central bank independence and new risks: climate’ in Stockholm. After comments from MPC member Pill on Monday, people will look to see if Bailey is just as hawkish. GBP/USD opens this morning slightly off the highs seen yesterday. The currency pair currently sits at 1.2160. GBP/EUR opens today at 1.1330.