Sterling overall held steady on Friday with risk appetite and global market trends tending to dominate. The UK currency was able to hold just above 2-month lows against the dollar and rallied slightly after the New York open. There were no significant political developments during the day with caution ahead of the Bank of England policy decision due on February 3rd with strong market speculation that the central bank will sanction a further increase in interest rates to curb inflation pressures. CFTC data recorded a fresh reversal in positioning with a net short of over 7,500 contracts for the latest week from close to balance the previous week. There will be a reluctance to sell against the Sterling ahead of the monetary policy decision with month-end position adjustment also likely to be an important focus during the day which could lead to choppy Sterling trading.
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Euro-zone German GDP declined 0.7% for the fourth quarter of 2022 compared with expectations of a 0.3% contraction and the year-on-year increase was held at 1.4% from 2.8% previously. The data maintained concerns over the near-term economic outlook. Euro-zone industrial sentiment retreated to 13.9 for January from 14.6 previously and below expectations of 15.0 while the services sentiment index declined to 9.1 from 10.9 in December and also below market expectations with a net retreat in the overall business survey. CFTC data recorded a further increase in long Euro contracts to over 31,000 in the latest week from below 25,000 previously which suggests that hedge funds are likely to have been caught out by the renewed Euro decline. The latest German inflation data will be released on Monday with a sharp annual decline expected.
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10.00 Gross Domestic Product (QoQ) (Q4) Exp. 0.3% Prev. 2.2%
10.00 Gross Domestic Product (YoY) (Q4) Exp. 4.7% Prev. 3.9%
The US core PCE prices index increased 0.5% for December which was the same rate as in November and in line with consensus forecasts. The annual rate increased to 4.9% from 4.7% which was slightly above consensus forecasts of 4.8% and the highest reading since 1983. The employment cost index increased 1.0% for the fourth quarter of 2021 compared with expectations of a 1.2% increase. There was no significant shift in inflation expectations following the data.
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