February 27, 2023

Daily Report 27/02/2023

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Sterling was unable to gain any support after Friday’s European open with a drift lower against the dollar. Bank of England Monetary Policy Committee member Tenreyro stated that the impact of the energy price shock and lags in monetary policy brought the risk of raising borrowing costs too high. The overall stance was dovish, but the impact was limited given that she dissented against the last two Bank of England rate decisions and has maintained a dovish stance. Sterling was hurt by weaker equities and dollar strength after the US data. Sterling dipped to lows against the dollar amid fragile risk conditions. Over the weekend, there were further intense negotiations surrounding a deal with the EU over the Northern Ireland protocol. EU Commission President von der Leyen and Prime Minister Sunak are due to hold a press conference on Monday with strong expectations of a deal, but with scope for notable opposition to any agreement, especially from the Northern Ireland DUP.

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CFTC data released for late January recorded a further net increase in short Euro positions. ECB President Lagarde stated that there will be a further 50 basis-point hike at the March meeting and thereafter be will be data dependent with no significant Euro support.
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The US PCE prices index recorded a 0.6% increase for January with the annual increase strengthening to 5.4% from 5.3%. The core index also increased 0.6% on the month compared with expectations of 0.4%. The year-on-year increase strengthened to 4.7% from 4.6% and significantly higher than market expectations of 4.3%. Given that the PCE index is a core inflation metric for the Federal Reserve, the stronger than expected reading reinforced market fears that the Federal Reserve would have to take a more aggressive stance in raising interest rates to bring inflation under control. The University of Michigan consumer confidence index was revised higher to 67.0 for February from the flash reading of 66.4 with a dip in current conditions offset by stronger expectations. The 1-year inflation expectations index edged lower to 4.1% from 4.2% for the flash reading. The dollar maintained a strong tone into the New York close, especially with defensive support as Wall Street equities moved lower.

Key Data 

13.30 Durable Goods Orders (Jan) Exp. -4% Prev. 5.6%

13.30 Nondefense Capital Goods