Central banks take centre stage

The euro and sterling closed out Friday both largely unchanged on the week against the dollar and kick off this week trading at around $1.0850 and just shy of $1.24 respectively. This in turn sees the single currency-pound exchange rate trading a touch below 88p at the off this morning

In government bond markets, both US and German 10-year yields ended marginally higher last week at around 3.50% and 2.25% respectively but equivalent UK yields were slightly lower at just over 3.30%

Central banks are to the fore this week with the Fed (Wednesday), ECB and Bank of England (both Thursday) all announcing their latest interest rate decisions, while economic data scheduled for release include Euro area GDP and CPI inflation on Tuesday and Wednesday respectively and the employment (payrolls) report in the US on Friday

The Fed seems set to raise interest rates again but to step down the pace of increase to 25 basis points (bps), while the ECB and Bank of England are both likely to raise their respective policy rates by 50bps

Regarding this week’s data, the Euro area economy is expected to have contracted slightly in the final quarter of 2022, with GDP falling by 0.1% (from Q3), according to the consensus forecast, while the headline rate of CPI inflation in the zone is seen falling slightly to 9.0% in January (from 9.2% in December)

The employment report in the US, meanwhile, is expected to show the economy added just shy of 200k jobs in January, with the unemployment rate ticking up to 3.6% and the year-on-year rate of growth in average hourly earnings declining for a second month in a row to 4.3%