- Pound (GBP) reached 23 month high on Monday
- Omicron fears ease, BoE hike expected
- Euro (EUR) eased amid a stronger USD
- ECB Christine Lagarde to speak
The Pound Euro (GBP/EUR) exchange rate is holding steady on Tuesday after gains in the previous session. The pair settled +0.25% higher on Monday at €1.1985 after briefly spiking above €1.2000 an almost 2-year high. At 05:45 UTC, GBP/EUR trades flat at €1.1985.
The Pound pushed higher in the previous session despite there being little fresh information for investors to go on and despite ongoing Brexit uncertainties. Instead investors are focusing on the prospect of an interest rate hike by the BoE in the February meeting. According to the CME BoE watch tool, the market is pricing in an 82.5% probability of the UK central bank hiking rates in the next meeting.
COVID remains a risk. However, optimism is building that the impact of the newest COVID strain on the UK economy will be contained. The UK appears to be moving out of the pandemic, as cases fall and so far England has avoided tighter lockdown restrictions.
There is no high impacting UK economic data due to be released today. Attention will remain
The Euro came under pressure in the previous session on US dollar strength and despite upbeat data. The US Dollar advanced on rising bets that the Fed will move to sooner to raise interest rates as inflation is set to hit 7%. The Euro trades inversely to the greenback.
Eurozone unemployment ticked lower to 7.2% in November, down from 7.3% and marking its lowest level since March 2020. The improvement was widely expected by economists. Meanwhile, Eurozone Sentix investor confidence unexpectedly increased in January to 14.9, up from 13.5. Analysts had forecast investor morale would fall again to 12.5.
The better-than-expected reading suggests that investors are not expecting economic momentum to stall in the new year, despite surging Omicron cases.
Today there is no high impacting Eurozone data. Instead, ECB President Christine Lagarde is due to speak. Given the more dovish stance of the ECB, the speech may drag on the common currency.