Sterling was notably subdued ahead of Friday’s New York open with the currency settling against the dollar. Overall confidence in the economic outlook remained fragile following the weaker than expected retail sales report and further slide in consumer confidence. Sterling drifted lower into the New York close amid a firm dollar tone with Sterling struggling to gain any support from net gains in equity markets. CFTC data recorded a further increase in short Sterling positions to over 37,000 contracts in the latest week from 29,000 the previous week and the largest short position since early January. The data will maintain the potential for short covering if there is a shift in sentiment, although overall sentiment is likely to remain cautious in the short term given important reservations over the UK outlook. Comments from Bank of England Governor Bailey will be watched closely on Monday for any evidence of the central bank thinking on inflation and the potential for further interest rate hikes.
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11.00 Andrew Bailey Speech
The German IFO business confidence index declined sharply to 90.8 for March from 98.6 previously and well below consensus forecasts of 94.2. The current conditions component retreated to 97.0 from 98.6 while there was a sharp decline in the expectations component to 85.1 from 98.4 and the weakest reading since May 2020. The IFO stated that the economy faces uncertain times while supply-chain issues have intensified. It also noted that expectations of price increases have continued to increase while 80% of companies are facing problems associated with the surge in costs. Overall confidence in the Euro-zone outlook remained weak. Euro-zone money supply growth slowed slightly to 6.3% in the year to February from 6.4% previously while growth in private loans was unchanged at 4.4%.
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New York Fed President Williams stated that the central bank is watching inflation expectations very closely and that medium and longer-term expectations have been remarkably stable. Markets will continue to monitor Fed rhetoric closely with speculation over a 0.50% rate hike in May. There were some concerns over a further deterioration in the Ukraine situation following President Biden’s unscripted comments on Russian President Putin during the weekend. The final reading for the US University of Michigan consumer confidence index was revised slightly lower to 59.4 from the flash reading of 59.7 while 1-year inflation expectations held at 5.4%.
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