Treasury Market Commentary –

US inflation hits 40 year peak

A weekly economic update from our Treasury team.

Published

14th January 2022

Category

Macro Commentary

Central banks continue to dominate the news, with the Bank of England potentially raising rates again next month, and the US Federal Reserve increasingly likely to start raising rates in March.

Surging inflation is driving this tighter monetary policy, as well as growing optimism that we may be over the worst of the virus.

The challenge facing central bankers, is the balance of raising interest rates without damaging the economy, as they weigh the inflationary risks against growth and employment.

UK long term interest rates remain at their highest levels since 2018, with the 5-year swap rate hitting 1.20% this week. US inflation has hit 7%, its highest level since 1982.

The European central bank, however, insists that high inflation will be temporary, and they are likely to keep negative interest rates until well into next year.

Important UK data to watch next week includes the latest jobs data, inflation, and retail sales.

On the exchanges, volumes remain light with the market lacking any real conviction as we start the year. Sterling demand should remain strong ahead of the Bank of England meeting on Feb. 3rd, whilst the interest rate outlook should continue to weigh on the Euro. The dollar is under some selling pressure as markets take a more risk-on approach with fears over the virus starting to ease.

GBP/EUR is trading close to the psychological 1.2000 level, with the pre-pandemic high of 1.2050 now in focus. 

GBP/USD continues to push higher, hitting a 3-month high of 1.3750 following the US inflation data this week.  

GBP/USD – 1-year chart

“”

Week Ahead

Date

Release

Last

Expected*

18/1/22

UK Average Weekly Earns. 3M/YoY

4.9%

n/a

18/1/22

UK Unemployment Rate

4.2%

n/a

19/1/22

UK CPI YoY

5.1%

n/a

19/1/22

UK RPI YoY

7.1%

n/a

19/1/22

UK House Price Index YoY

10.2%

n/a

21/1/22

UK Retail Sales YoY

4.7%

n/a

*Bloomberg survey / Not available

Foreign Exchange

Currency

Last

Currency

Last

GBP/USD

1.3725

USD/JPY

113.80

GBP/EUR

1.1970

AUD/USD

0.7280

EUR/USD

1.1470

USD/CHF

0.9100

GBP/AED

5.0420

XAU/USD

1827

Equity Indices

Indices

Previous Close

YTD % Change

FTSE 100

7565

+2.46%

S&P

4659

-2.25%

EUROSTOXX

4315

+0.39%

UK Benchmark Rates

Libor

 

Swap Mid (SONIA)

 

3 month

0.51170%

2 year

+1.07%

6 month

0.83270%

5 year

+1.14%


View Arbuthnot Latham’s Private and Commercial deposit rates.

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