Sterling managed to stabilise after the European open on Tuesday but struggled to gain any traction against major currencies. There were further concerns over the threat of a major hit to the UK economy, especially given a further jump in energy prices while there were also increased inflation fears which will make it increasingly difficult for the Bank of England to set monetary policy. The net balance of opinion suggested that the bank would be more cautious over rate hikes which curbed Sterling support. The UK announced that it was aiming to phase out Russian oil imports gradually with the aim to stop all imports by the end of 2022 and there was notably choppy trading across asset classes, although Sterling moves were relatively limited.
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German industrial production increased 2.7% for January after a revised 1.1% increase the previous month and above expectations of 0.5%. The Euro gained ground ahead of Tuesday’s New York open with the EU aiming to issue bonds to help finance spending on energy infrastructure and defence spending with the clear aim to reduce dependency on Russian energy imports over the medium term. The Euro moves have been linked to moves in energy prices and the dip in oil prices helped trigger a renewed Euro recovery around the European close with caution ahead of Thursday’s ECB meeting also triggering a covering of short positions.
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The US NFIB small-business confidence index retreated to a 12-month low of 95.7 for February from 97.1 in January and below consensus forecasts of 97.5. There was further evidence of strong inflation pressure within the survey with a record number of companies looking to raise prices and a high number of companies reporting that inflation was their biggest problem. There will be further pressure for a tighter Federal Reserve monetary policy. The overall US trade deficit widened to a record high of $89.7bn for January from a revised $82.0bn the previous month and above market expectations of $87.0 bn for the month with an increase in imports for the month coupled with a decline in exports. The US Administration announced an immediate ban on oil imports from Russia which had been expected and oil prices failed to hold intra-day gains in very volatile trading.
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