Sterling to track Euro 'tick for tick' this week

Last week's deluge of UK macroeconomic data did little to clarify the Bank of England's rate path. The jobs market continues to soften at a steady pace. The unemployment rate remains stuck at a decade high outside of the pandemic, while payrolled employment sank by an alarming 43k in December, which is also the largest drop outside of COVID-19 since the data set began in 2014. Inflation remains stubbornly high and above 3%, albeit this was driven by temporary factors, while retail sales were surprisingly strong in December.

There are few data releases or Bank of England communications on the docket this week, so we expect the pound to track the euro almost tick for tick.

Investors will have one eye on the next MPC rate announcement (05/02), but with no real expectations for another cut for at least the next two or three meetings, this announcement is unlikely to rock the boat to any significant extent.