Daily Report 14/02/2022

There was little overall reaction to the batch of UK data releases with mixed GDP data seen as having limited impact on the outlook and Bank England. There were some reservations that the economy would be hampered by pressures on consumer spending due to tax increases and jump in energy prices. The NIESR estimated that GDP increased 0.3% for January following the December decline of 0.2% which would give annual growth of 9.7% given the sharp contraction in January 2021. Global equity markets were resilient initially which limited the scope for Sterling selling, especially with commodity currencies posting net gains on the day. Sterling advanced against the dollar as UK money-market yields remained elevated. The mood changed rapidly late in the US session as Ukraine fears triggered a slide in equities. CFTC data recorded a further decline in short, non-commercial Sterling positions to 8,500 contracts from 23,600 the previous week, limiting the scope for further short covering.

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After dipping into the European open on Friday, the Euro was able to find support close to Thursday’s lows and edged higher into the New York open amid speculation that the ECB would have to take a more hawkish stance on interest rates. The Euro dipped sharply late in the day amid increased fears over the Ukraine situation following reports that an invasion was imminent.

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16.15 Christine Lagarde Speech

The US University of Michigan consumer confidence index dipped to 61.7 for February from 67.2 the previous month and well below consensus forecasts of 67.5. The current conditions component declined to 68.5 from 72.0 with a significant drop in the expectations index. Inflation expectations remained a significant focus. The 1-year inflation expectations index edged higher to 5.0% from 4.9% with the 5-year figure unchanged at 3.1%. Federal Reserve policies remained a key focus during the day. San Francisco Fed President Daly stated that a 50-basis-point rate hike was not her preference for the March meeting and there were also reports that, in private, other Fed officials had stressed the importance of a gradual approach to monetary policy.

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