Sterling attempted to stabilise during Wednesday, but struggled to secure more than limited support with further reservations over the domestic and international outlook. Bank of England Monetary Policy Committee member Dhingra stated that many tightening effects are still to take hold and overtightening poses a more material risk at this point. In this context, she stated that a prudent policy would be to hold policy steady. The stance was not surprising given that she has voted against rate increases at the last two monetary policy meetings. There were, however, further expectations that the BoE would adopt a less aggressive policy that the ECB or Federal Reserve. The British Chambers of Commerce expects that the UK economy will avoid a technical recession with limited growth in the second half of the year, but the overall outlook is still expected to be weak. The Rightmove housing index edged lower to -48 for February from -46 previously, maintaining housing concerns.
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ECB council member Visco stated that monetary policy should be guided by data as it becomes available which tended to put him in the more dovish camp within the bank. The Euro managed to avoid further losses amid expectations of a hawkish overall stance, but struggled to generate any recovery ahead of the US open.
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The US ADP data recorded an increase in private-sector payrolls of 242,000 for February and above consensus forecasts of 200,000, but there was only a small upward revision to the January increase to 119,000 from the flash reading of 106,000. There was a firm increase in manufacturing employment for the month, but jobs in business services and construction declined while there was a notable decline in jobs in small companies. The annual increase in wages slowed slightly to a 12-month low of 7.2% from 7.3% the previous month, but remained high in relative terms. The prepared text of Powell’s testimony was the same as on Tuesday which is the normal practice. Powell did, however, comment that no decision has been made on a potential 50 basis-point rate hike for the March policy meeting. He insisted that the March decision is data dependent and will be guided by incoming data. In this context, he notes that jobs and CPI data will be important. Powell also noted the importance of housing-sector inflation and that major forecasters expect a slowdown.
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