Last week, the pound had a mixed performance, slipping 1% against the US dollar but gaining 1% against the euro. Citigroup delivered good news, updating their UK inflation forecast and expecting it to fall to 2.3% in 9 months. MPC member Mann spoke hawkish about monetary policy being “insufficiently aggressive.” MPC members Broadbent, Pill, and Mann will be speaking this week. Prime Minister Sunak is working to agree on a deal with the EU for a new Northern Ireland protocol, which, if successful, could unleash £100 billion of investment in the UK, according to Berenberg.
The EURUSD fell 4% in February despite the expectation that the ECB is preparing the market for a 0.5% rate hike in March. Eurozone Headline CPI is still high, growing 8.6% annually, with core CPI at 5.3%. The Eurozone CPI First Estimate will be released on Thursday. Will it drop in line with the fall in gas prices? Bundesbank President Nagel will speak the day before, but will he maintain his hawkish tones?
February was a strong month for the US economy, with positive jobs and retail sales data. Inflation was higher than expected, with CPI at 6.4% annually, exceeding the 6.2% forecast. Personal Consumption Expenditure was 5.4%, against a forecast of 5%. Consequently, Bloomberg reported that the market has now priced additional rate hikes. This has encouraged US dollar strength, with the US dollar index jumping 4.5% this month. The Fed is in a tricky situation as inflation rebounds higher just as they were expected to hit their terminal rate. Will the Fed hike rates in March, May, and June as the market now expects? Can the US dollar continue to strengthen as it has throughout February?