• GBP/USD is a mix of bad UK political situation and cleaner bill of covid health. 
  • The BoE will be the focus for the day ahead along with UK CPI and PM Johnson’s question time in Parliament. 

GBP/USD is a touch higher in Asia in a subdued market setting with the US dollar and yields stealing the show so far. At 1.3604, the price is 0.07% higher after rising from a low of 1.3585 to reach a high of 1.3605 so far. The US dollar, meanwhile, is attempting to make its claim to the 95.80s, but is lacking momentum is a quiet start to Wednesday’s trade. 

The focus on the domestic front is political. The ”Partygate” scandal has taken the tabloids front pages in the UK for some time for which PM Boris Johnson has denied any wrongdoing. However, the public is of a different opinion, and so too are the Conservative party rebels. 

The PM’s attendance at the “bring your own booze” Downing Street garden party during England’s first lockdown in May 2020, is throwing his premiership in jeopardy and the political uncertainty is a weight for the pound. Some MPs are refusing to accept his claim that he thought it was a “work event”.

”Johnson will attempt to contain the rebellion by announcing a lifting of Covid-19 restrictions in England — a move popular with Tory MPs — but one ally said there was a “50-50 chance” he could soon face a confidence vote, the FT recently reported.

”Downing Street is eyeing the prospect of a northern rebellion nervously, and some rebel Tory MPs claim they will soon have the necessary 54 letters required to trigger a confidence vote in Johnson.”

Today, Johnson is going to be setting out plans to end many Covid-19 restrictions in England when they legally expire on January 26. The pound will likely find solace in that as the positive sentiment around improving trends recently in Covid infection rates and hospital admissions will be sure to boost consumer and business confidence in the UK.  According to the latest NHS data, Covid-related hospital admissions are falling in every region of England.

With that being said, if Johnson is found to have misled Parliament about the Downing street parties, then the expectations would be for him to resign. Meanwhile, markets will be eagerly awaiting the Gray report which will not be published until next week.  

Sue Gray, a UK civil servant, has been tasked to investigate the Partygate scandal and depending on what Sue Gray’s report finds, it could lead to officials facing disciplinary proceedings and possibly even dismissal. Her inquiry matters for one key reason: it may provide the spark and the ammunition that brings Johson’s government to an end.

UK data and BoE in focus

Meanwhile, the UK economic calendar has been and will continue to be important this week. On Tuesday, the British employers added a record number of staff in December failed to prop up sterling, despite the Unemployment Rate that fell slightly to 4.1% (vs. expectations: 4.2%). Both headline and ex-bonus wage growth continued to fall as more base effects disappear from the data, with headline wage growth falling slightly.

”Employment data for the three months ending in November continued to confirm the MPC’s view that the transition from the furlough scheme went relatively smoothly,” analysts at TD Securities explained. 

Markets will now turn to today’s inflation release, ”but as it stands”, the analysts at TDS said, the ”labour report should pave the way for another rate hike in February—in line with our expectations—especially as Omicron appears to have had a relatively benign impact on the economy compared to previous waves.”

Headline UK inflation is seen ticking up to 5.2% year from 5.1%, with core inflation at 3.9%. 

Separately, Governor Bailey appears before the Treasury Select Committee at Parliament alongside Deputy Governor Jon Cunliffe and two other FPC members to discuss the latest Financial Stability Report.

”While monetary policy is not on the agenda, this is the first public appearance by an MPC member (other than external member Catherine Mann) since the week of the MPC’s December rate hike, and comes just a week before the blackout period for February’s MPC meeting kicks in,” analysts at TD Securities said.

”As such, it’s a prime opportunity for the Governor to provide some guidance for the February meeting, for which markets currently see about a 90% chance of a 25bp rate hike (it’s our base case as well).”

This article was originally published by Fxstreet.com.Read the original article here.


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