This morning marks the end of another week of analyzing the thoughts surrounding central bank policies and their expected impact. Following last week’s UK Services for February, there was a strong increase to 53.3, which signals expansion as anything over 50.0 in the sector. Additionally, the manufacturing sector also showed positive growth figures, and there was an increase in consumer confidence, although still in negative territory. These signals will be taken as positive, placing more pressure on the Bank of England (BoE) to further tighten its cycle.

Governor of the BoE, Andrew Bailey, outlined yesterday that they will continue their march upwards, stating, “If we do too little with interest rates now, we will only have to do more later on. The experience of the 1970s taught us that important lesson.” While Bailey’s comments will be taken with caution, he also stressed the importance of making sure prices faced by consumers are still reasonable enough for them to afford to live. Bailey went on to say, “At this stage, I would caution against suggesting either that we are done with increasing Bank Rate, or that we will inevitably need to do more. Some further increases in Bank Rates may turn out to be appropriate, but nothing is decided. The incoming data will add to the overall picture of the economy and the outlook for inflation, and that will inform our policy decisions.” This is the usual jargon we hear to avoid giving too much away.

At the start of the week, the pound traded slightly higher versus the US dollar, just under the 1.22s. However, as US consumer confidence increased, rather than declining as forecasted, this helped prop up the Greenback versus most currencies. As the week progressed, the Greenback held its strong position with further manufacturing and unemployment claim data showing the resilience of the US Market. Andrew Bailey’s speech on the cost of living crisis mentioned earlier in the article dealt the final blow, causing the US dollar to return to the sub 1.20s.

During the week, GBP/EUR peaked at 1.1419, with many importers hoping for some affordability. With the slew of positive UK data received towards the end of February, things seemed fairly optimistic for UK importers and presented some fantastic short-term hedging opportunities. However, just like these opportunities, the rate was also short-lived as the common theme of the cost of living seems to be taking its toll on the Pound. The European Central Bank (ECB) is dealing with its own crisis at the moment, as it seems to have outlined inflation being fueled by corporate price increases past costs. This is causing problems for central bankers as it is a different type of inflation that naturally corrects itself. Moving forward, we can expect to see a different avenue of taming inflation in the way of corporate margin tightening, as it is a more favourable solution than beating the general consumer. The next ECB meeting is on March 16, and we can expect to see how the story unfolds then.