EUR / USD
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.
The Euro remained under pressure ahead of the New York open as dollar strength dominated with 20-month lows just above 1.1120.
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.
There was a limited correction into the European close as the dollar retreated from intra-day highs and the Euro recovered some ground to near 1.1150.
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.
The dollar lost ground on Monday with the Euro around 1.1165 with markets still wary over further month-end position adjustment later in the day.
JPY
US Treasuries dipped ahead of Friday’s New York open, but there was a net recovery after US markets opened with 10-year yields edging lower.
Minneapolis Fed President Kashkari stated that interest rates need to rise a little bit as he maintained his relatively dovish rhetoric.
Treasuries rallied further towards the European close and the dollar retreated from its best levels and dipped to near 115.10 against the Japanese yen.
CFTC data recorded a net decline in short yen positions to near 68,000 from above 80,000 the previous week.
Over the weekend, Atlanta Fed President Bostic stated that he would be willing to back a 0.5% rate increase if the data supported it, maintaining hawkish expectations.
China’s PMI manufacturing index edged lower to 50.1 for January from 50.3 previously and close to consensus forecasts while the non-manufacturing index retreated to 51.1 from 52.7. The Caixin manufacturing index dipped into contraction territory at 49.1 for January from 50.9 and below expectations of 50.1.
Chinese markets were, however, closed on Monday which limited the potential impact and Asian equity markets posted net gains.
US 2-year yields edged higher which underpinned the dollar and it traded around 115.40 against the yen with the Euro around 128.85.
GBP
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 back above 1.3400 after the New York open. The Euro was able to hold just above 23-month lows during the day, but held close to 0.8300.
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. The UK currency held above 1.3400 on Monday around 1.3425 with the Euro around 0.8320.
CHF
The Swiss KOF business confidence index edged higher to 107.8 for January from 107.2 previously and above consensus forecasts of 106.3. The Euro was able to secure a limited gain on the day and settled around 1.0380 while the dollar was unable to sustain intra-day gains.
There was further speculation that inflation differentials would support the Swiss franc over the medium term. The latest data on sight deposits will be monitored closely on Monday to assess whether the National Bank has been intervening. The Euro edged higher on Monday to around 1.0395 with the dollar just above 0.9300.
Technical Levels
Calendar Levels
