European and US futures are trading lower as there are some concerns among investors that inflation could be getting out of control. Traders believe that if the sharp rise in inflation is not addressed, higher prices may actually hurt the economic recovery.
So far, central banks such as the Fed, the ECB, and the BOE haven’t paid much attention to this issue as they feel that inflation is still within their level of tolerance, and they can smack the inflation numbers down whenever they want.
The other factor which is pushing inflation up is the sharp increase in oil prices. There is no doubt oil prices had seen a remarkable recovery, and both WTI Crude and Brent oil prices are becoming closer to levels which we saw before the pandemic surged.
Over in the UK, all eyes will be on the Prime Minister, Boris Johnson, who will be announcing the plans to ease the lockdown. The UK is in its third lockdown since the outbreak of coronavirus, and the government has failed miserably during this period to contain the virus.
All three lockdowns have had a major influence on consumers. The evidence of this was recently displayed in the form of the Retail Sales number, which fell off the cliff last week when the data released. A drop of over 8% in the retail sales number confirmed that consumers are not comfortable spending big anymore.
Having said that, it is also true that the economic recovery in the UK, despite several blunders by the government, has been immensely resilient. This is because the UK’s important economic readings have been coming much stronger than the forecast.
This is an enormously encouraging sign because, during the Covid period, the UK also faced the threat of Brexit. The British Pound has claimed a spot against the dollar that we did not see in nearly three years last week.
The GBP/USD pair crossed above the 1.40 mark last week, and it seems like traders are ready to push the currency even higher. Some of the moves in the currency could take place today when the Prime Minister will lay out his plan about opening the economy. (more on currency strength)
Market players expect the prime minister to open schools as early as March 8th, and non-essential shops could also be opening later this month. There is no doubt that traders are more focused on all the positive headlines that the country has produced in relation to its vaccination process.
Nearly one-third of the population has received their first shot of vaccination which mainly consists of over 50s. The rapid rollout of the vaccine has made the public and investors focus on current matters more, such as coronavirus vaccination.
However, the Bank of England hasn’t taken the option of negative interest rates off the table. This particular option is still very much remains a real possibility. One will only know the exact strength of the economic data after the government begins to withdraw its support.
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