Sterling posted net gains on Monday but failed to hold intra-day highs with notably choppy trading during the day. There were further expectations that the Bank of England would raise interest rates this week which helped underpin sentiment and triggered a potential covering of short Sterling positions. The interim publication of the Gray report had some impact in curbing potential support for the UK currency, although the overall impact was limited with no immediate move to oust Prime Minister Johnson by Conservative MPs. There was optimism that the impact of Omicron would fade as overall infection rates edge lower which provided some support. Month-end position adjustment was a significant factor after the New York open.
Key Data
9.30 Markit Manufacturing PMI (Jan) exp. 56.9 Prev. 56.9
Euro-zone GDP increased 0.3% for the fourth quarter which was in line with consensus forecasts with annual growth at 4.6% and marginally below market expectations. German consumer prices increased 0.4% for January compared with predictions of a 0.3% decline. The annual rate was at 4.9% from 5.3% previously, but well above expectations of 4.3%, reinforcing expectations that the Bundesbank would push for a tighter monetary policy. The data also triggered a fresh round of speculation that the ECB would adopt a more restrictive policy over the next few months with money markets pricing in an increase of 10 basis points by September despite previous insistence from the ECB that it would not raise rates this year. The increase in money markets was significant in providing Euro support and the single currency posted net gains into the New York open.
Key Data
9.00 ECB Bank Lending Survey
The Chicago PMI manufacturing index strengthened to 65.2 for January from 64.3 the previous month and above consensus forecasts of 61.7. The Dallas Fed manufacturing index retreated to an 8-month low of 16.6 from 26.0 previously. There was choppy trading in US Treasuries during Monday with yields initially moving higher before a reversal and slight net decline into the European close with the 10-year yield around 1.78% which limited potential dollar support. San Francisco Fed President Daly stated that an increase in interest rates was likely as early as March. Following his comments over the weekend, Atlanta Fed President Bostic said that a 0.50% rate hike at the March meeting is not the preferred policy action.
Key Data
15.00 ISM Manufacturing PMI (Jan) Exp. 57.5 Prev. 58.7