EUR GBP Erases Losses Ahead of Employment Data

The EUR GBP exchange rate was slightly higher after erasing early losses to 0.8500. The UK will see the release of employment data today, but traders will be looking to the BoE meeting on Thursday and further talk of restrictions that will damage the jobs market. MPs are set to vote on the Plan B today, but they are likely to pass.

The EUR v GBP opens the week near 0.8540 ahead of the latest economic data.

ING analysts see BoE ‘omnicron conundrum’

Analysts at ING bank have joined the chorus for a February rate hike by the Bank of England.

New data from the Office for National Statistics (ONS) on Friday saw GDP growing by only 0.1% in the month, below the 0.4% that economists had forecast.

They said:

“A February Bank of England rate hike looks likely, but it relies on Omicron dealing only a modest blow to UK activity. That’s our base case, but a combination of tighter restrictions, reduced consumer appetite to socialise, and more limited government support, would deliver a noticeable hit to January’s GDP numbers”.

“If the government closed nightclubs, curtailed large events, imposed some new constraints on hospitality (eg outdoor-only dining), and extended school holidays by a couple of weeks, then we think January GDP would fall by roughly 1-1.5%. If a full lockdown is needed, then that probably delivers a 5% hit,” they added.

On the jobs market they said the “risk is that government support measures are less comprehensive”. But suggested that “the recovery in the jobs market stalls but fundamentally doesn’t deteriorate.”

Today sees the release of the latest jobs number with analysts expecting an increase of 228k jobs after a 247k print last month. Economists are now looking to gauge the damage from the most recent restrictions from the government.

Markets lower head of interest rate meetings

Stock markets were dragged lower by Omnicron fears with meetings from both the European and British central banks on Thursday.

Sebastien Galy, senior macro strategist at Nordea Asset Management, said: “Global equity markets are rebounding on the back of the fear of missing out as fears quickly fade of the Omicron variant and a likely faster tapering by the Federal Reserve.”

“The ECB is also likely to turn gently but steadily more hawkish, hoping as it does that the Fed can slow down global demand enough for the ECB not to tighten too fast the screws of liquidity…”

But Mark Haefele, chief investment officer at UBS, said: “We believe markets can continue take a higher inflation reading in their stride, though additional volatility remains a risk.”

He added that “inflation pressures are still set to decline next year, and we don’t expect the current elevated levels to harm consumer spending.”

Both banks have been given a pass by the variant after traders were pushing for rate hikes. Central banks have remained stubborn in the face of soaring inflation and governments may help them with further lockdowns.

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