Sterling regains ground
Sterling regained some ground against the euro yesterday, despite softer than expected inflation data in the UK, and is back trading at the levels we saw on Monday – of around 87.5p – following the announcement of a transition deal between the EU and the UK
The dollar is also firmer against the euro ahead of today’s interest rate decision in the US, trading just below $1.23. Bond yields in the US have also risen ahead of the Fed meeting, with 10-year yields back to 2.90%, close to their recent highs of near 3%
The Fed is widely expected to raise interest rates by 25bps today – the decision will be announced at 6pm Irish time – though the market will be more keen to learn what it signals about further rate hikes this year and beyond. On the face of it, the Fed is likely to indicate a higher path for rates than it has been signalling up to now, given that it is likely to raise its forecasts for growth and lower its projections for the unemployment rate
CPI inflation in the UK fell to 2.7% in February from 3.0% in January, slightly lower than the consensus expected (2.8%). The Bank of England expects inflation to head south over its forecast horizon but to remain slightly above the 2% target, hence it has signalled its readiness to raise interest rates again
Today sees the release of the latest labour market report in the UK. The unemployment rate is expected to remain at 4.4% in the three months to January, according to the consensus, with annual weekly earnings growth ticking up again
Other data due include existing home sales in the US