In comments on Friday, Bank of England Monetary Policy Committee member Mann stated that inflation data since November has not been consistent with stabilisation and that the ingredients are in place for inflation to remain strong for a longer period of time with residual wage and price strength likely to persist. She also noted that if demand-supply imbalances seen in 2021 continue, there could be another surge in wages and prices. She also stated that global inflation pressures could force the UK to tighten more than would be appropriate on domestic grounds and the bank needed to lean against expectations. These comments were generally hawkish, although she added that the shift in financial markets could allow a shallower rate path. Sterling was unable to make any headway, especially with risk appetite remaining vulnerable during the day. CFTC data recorded a further sharp decline in short Sterling positions to near 200 contracts in the latest week from over 20,000 previously and the smallest short position for close to three months, limiting the potential for further position adjustment with Sterling dependent on positive sentiment to make headway.
Key Data
9.30 Markit Services PMI (Jan) Exp. 55 Prev. 53.6
There were further concerns surrounding Euro-zone coronavirus developments during Friday with a warning from the German health ministry that the number of daily infections could triple by mid-February. The comments triggered an element of unease over Euro-zone developments, although risk conditions tended to dominate. Underlying confidence remained fragile during Friday as equity markets moved lower. Markets continued to monitor the Russia-Ukraine developments given the potential impact across European asset prices and overall risk appetite. Euro-zone consumer confidence declined marginally to -8.5 for January from a revised 8.4 previously, although this was above consensus forecasts of -9.0. CFTC data recorded an increase in Euro long positions to over 24,500 in the latest week from 6,000 previously and the largest position since September 2021, limiting any scope for further Euro support on position adjustment.
Key Data
8.30 German Markit Manufacturing PMI (Jan) Exp. 57 Prev. 57.4
8.30 German Markit PMI Composite (Jan) Exp. 49.2 Prev. 49.9
9.00 Markit PMI Composite (Jan) Exp. 52.6 Prev. 53.3
There will be caution ahead of Wednesday’s Federal Reserve policy statement with investment banks expecting a clear signal that rates will be increased at the March meeting. There was some speculation that the Federal Reserve could adjust its language slightly at the policy meeting given the recent signs of vulnerability in risk appetite. US Treasuries continued to recover on Friday with fresh demand for safe-haven assets as risk appetite remained fragile. The 10-year yield dipped below 1.80% which tended to sap dollar support.
No Key Data