Nationwide reported an increase in house prices of 1.7% for February with the annual increase at a 7-month high of 12.6% from 11.2% as prices posted a fresh record high. Nationwide still expected that there would be a slowdown in the sector over the next few months given wider economic pressures. Sterling remained vulnerable in early Europe, but gradually recovered some ground as risk appetite recovered. The UK currency was hampered by the sharp decline in yields and reduced expectations surrounding Bank of England tightening, although the impact was limited by lower yields elsewhere. As risk appetite improved further, Sterling recovered against the dollar while the Euro retreated sharply to test important support levels at the European close. Sterling made further headway later in the day and traded higher against the dollar on Thursday while the Euro retreated to 2-year and very close to 5-year lows as the Euro remained under wider pressure in global markets.
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Germany reported a further unemployment decline of 33,000 for February after a 48,000 decline the previous month. Euro-zone consumer prices increased 0.9% for February with the year-on-year rate increasing to 5.8% from 5.1% which was above consensus forecasts of 5.3% and a fresh record high. The core annual rate also increased to a fresh record high of 2.7% from 2.3%, maintaining pressure on the ECB to take action.
Bundesbank head Nagel also stated that the ECB must adjust the course of monetary policy if price stability demands it. There was, however, a further erosion of market expectations surrounding ECB policy with only 15 basis points of tightening priced in by the end of 2022 which sapped Euro support.
Key Data
EUR Markit PMI Prev 55.8 Exp 55.8
In prepared testimony, Fed Chair Powell stated that he expects it will be appropriate to raise interest rates in March with the need to move away from highly stimulative monetary policy settings. He added that the impact of the Russian invasion of Ukraine is highly uncertain and that making appropriate decisions must recognise this.
Powell also commented that the labour market is extremely tight and wages are increasing at the fastest rate in many years while supply disruptions have also been larger and longer-lasting than anticipated. The prepared comments reinforced expectations that the Fed would opt for a modest rate hike this month and Powell subsequently confirmed that the bank was expecting to raise rates by 0.25% at the meeting.
Chicago Fed President Evans stated that inflation is extremely high and that needs to be addressed by monetary policy with policy moving towards neutral. He added that it will take until 2024 to get inflation back down to 2%.
Key Data
Markit PMI Composite(Feb) Prev 56 Exp 56