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Higher Pound, Lower Yen Likely

STOCK INDEX FUTURES

The 9:00 central time January existing home sales report is expected to show 6.088 million and the 9:00 January leading indicators report is anticipated to be up 0.3%.

The dominant influences remain tensions in Ukraine and the hawkish Federal Reserve.

CURRENCY FUTURES

Construction output in the euro area fell 3.9% year-on-year in December of 2021, following an upwardly revised 0.4% increase in November. This is the biggest decrease in the construction sector since February 2021.

Retail sales in the U.K. increased 1.9% month-on-month in January of 2022, rebounding from an upwardly revised 4.0% decline in December and beating market forecasts of a 1.0% advance.

This report strengthens the case for a third consecutive interest rate hike from the Bank of England.

Interest rate differential expectations suggest the long term trend for the British pound is higher.

Japan’s consumer prices increased 0.5%  year-on-year in January 2022, easing from a 0.8% gain a month earlier, which was the steepest pace in two years.

Interest rate differential expectations suggest the long term trend for the Japanese yen is lower.

INTEREST RATE MARKET FUTURES   

St. Louis Federal Reserve President James Bullard warned yesterday that without central bank action on interest rates, inflation could become an even more serious problem. He said, “We’re at more risk now than we’ve been in a generation that this could get out of control.”

Federal Reserve speakers today are Charles Evans at 9:15, John Williams at 10:00 and Lael Brainard at  12:30.

Many market participants expect the Federal Open Market Committee will increase its fed funds rate seven times this year with the first hike likely at the March 16 meeting, or possibly earlier.

Some analysts believe that if the rate of growth in the U.S. economy slows, and also globally, it may be difficult for the Federal Reserve and other major central banks to maintain ramped-up hawkish policies.

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