EUR / USD
French annual inflation increased to 6.2% for February from 6.0% previously while the Spanish rate increased to 6.1% from 5.9% and both figures slightly above market expectations. The data increased speculation that there could be a stronger than expected release for Euro-Zone inflation and the Euro edged higher to above 1.0600.
US consumer confidence dipped to 102.9 for February from a revised 106.0 previously and well below consensus forecasts of 108.5. There was an increase in the current conditions component to 152.8 from 151.1, but this was offset by a sharp downgrade in the expectations component to 68.7 from 76.0 in January. The expectations component has been below the 80 level for 11 out of the last 12 months which, according to the Conference Board, often signals a recession within the next year. Overall confidence in the labour market held firm on the month.
The Chicago PMI index dipped to 43.6 for February from 44.3 previously and the sixth successive monthly contraction while there was easing of inflation pressures.
The Richmond Fed manufacturing index retreated further to -16 for February from -11 the previous month and below expectations of -6 with a further sharp decline in new and unfilled orders. There was a marginal easing of the rate increase in prices received.
The dollar dipped in reaction to the US data with the Euro strengthening to highs just above 1.0640.
There was, however, strong dollar demand into the month-end London fix with the Euro dipping back below the 1.0600 level. There was further dollar demand later in the session with the Euro retreating to 1.0575 at the US close as equities moved lower again. The Euro edged higher again to above 1.0600 on Wednesday as an element of optimism over the Chinese and global economy underpinned the currency and curbed dollar demand.
The yen posted sharp losses after the European on Tuesday with the dollar surging to highs around 136.90 against the Japanese currency as yield spreads dominated moves. There were also further expectations of a dovish Bank of Japan stance which undermined the yen.
The US goods trade deficit widened to $91.5bn for January from $89.7bn the previous month which will act as a limited drag on GDP data.
The US 10-year yield peaked around 3.97%, but there was significant buying of Treasuries after the US data releases and the yield dipped to around 3.90%.
Lower yields sapped dollar support and the yen also found notable relief on the crosses with the dollar sliding to lows around 135.75 before a recovery to just above 136.00. There was no significant Federal Reserve rhetoric during the day as the underlying Fed debate continued.
China’s PMI manufacturing index strengthened to 52.6 for February from 50.1 previously and well above consensus forecasts of 50.7 while the non-manufacturing index also strengthened to 56.3 from 54.4 in January. The Caixin manufacturing index also returned to expansion territory and the data helped underpin market sentiment.
There was further dovish Bank of Japan rhetoric which undermined yen support and the dollar posted a limited net advance to 136.30.
Sterling held a firm tone in early Europe on Tuesday with further support from agreement on the Windsor Framework on Monday. The deal to improve the Northern Ireland protocol boosted confidence in the UK outlook, especially as any underlying improvement in EU/UK relations could lead to a wider strengthening of trade ties.
Sterling posted highs just above 1.2140 against the dollar with the UK currency posting solid gains on most crosses.
There was month-end Sterling selling into the London fix and risk appetite was also weaker after the Wall Street open which tended to sap UK currency support…
The UK currency dipped to lows around 1.2025 near the Wall Street close. The Euro dipped to 1-month lows around 0.8755 before a recovery to around 0.8790.
UK shop prices increased 8.4% in the year to February, a fresh record high and maintaining pressure on consumer spending. Sterling held above 1.2000 against the dollar on Wednesday and traded around 1.2050 amid slightly increased confidence in the global economic outlook with the Euro close to 0.8800.
Swiss GDP was unchanged for the fourth quarter of 2022, slightly below consensus forecasts of 0.1% with year-on-year growth held to 0.8% and below expectations of 1.0%. The Swiss KOF business confidence index strengthened to 100.0 for February from 97.4 the previous month and above consensus forecasts of 98.0.
The franc lost ground during the day with the Euro strengthening to around 0.9965 while the dollar recovered strongly to 0.9420 before drifting to 0.9405 on Wednesday.