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EUR / USD

 

Euro-zone GDP increased 0.3% for the fourth quarter which was in line with consensus forecasts with annual growth at 4.6% and marginally below market expectations.

German consumer prices increased 0.4% for January compared with consensus forecasts of a 0.3% decline. The annual rate was at 4.9% from 5.3% previously, but well above expectations of 4.3%, reinforcing expectations that the Bundesbank would push for a tighter monetary policy.

The data also triggered a fresh round of speculation that the ECB would adopt a more restrictive policy over the next few months with money markets pricing in an increase of 10 basis points by September despite previous insistence from the ECB that it would not raise rates this year.

The increase in money markets was significant in providing Euro support and the single currency posted net gains into the New York open.

The Chicago PMI manufacturing index strengthened to 65.2 for January from 64.3 the previous month and above consensus forecasts of 61.7. The Dallas Fed manufacturing index retreated to an 8-month low of 16.6 from 26.0 previously.

Month-end position adjustment was a significant factor towards the European close with the dollar remaining on the defensive against all major currencies. Commodity currencies secured net gains with the Euro strengthening to above the 1.1200 level, extending the advance to 1.1230 late in US trading.

The dollar was unable to regain ground on Tuesday with the Euro trading around 1.1240 despite weaker than expected German retail sales data.

 

JPY

 

There was choppy trading in US Treasuries during Monday with yields initially moving higher before a reversal and slight net decline into the European close with the 10-year yield around 1.78% which limited potential dollar support.

San Francisco Fed President Daly stated that an increase in interest rates was likely as early as March. Following his comments over the weekend, Atlanta Fed President Bostic stated that a 0.50% rate hike at the March meeting is not the preferred policy action.

Equities reversed losses to post net gains which stifled support for the Japanese yen to some extent, but the dollar dipped to test support below 115.00 amid wider losses before rallying slightly as overall yield spreads continued to provide net backing for the US currency.

Japan’s PMI manufacturing index was revised to 55.4 for January from the flash reading of 54.6 and the highest reading for close to 8 years while there were some government concerns over the impact of a weak yen. Chinese markets remained closed for the New-Year holidays which dampened activity with regional equities posting limited gains. Volatility eased with the dollar trading close to the 115.00 level in early Europe with the Euro around 129.25.

 

GBP

 

Sterling posted net gains on Monday but failed to hold intra-day highs with notably choppy trading during the day. There were further expectations that the Bank of England would raise interest rates this week which helped underpin sentiment and triggered a potential covering of short Sterling positions. The interim publication of the Gray report had some impact in curbing potential support for the UK currency, although the overall impact was limited with no immediate move to oust Prime Minister Johnson by Conservative MPs. There was optimism that the impact of Omicron would fade as overall infection rates edge lower which provided some support.

Month-end position adjustment was a significant factor after the New York open. From highs just above 1.3450 against the dollar, there was a retreat to 1.3425 while the Euro found support close to 23-month lows near 0.8300 and recovered to near 0.8345.

The UK currency was little changed on Tuesday and traded close to 1.3450 against the dollar as the US currency overall remained on the defensive.

 

CHF

 

Swiss sight deposits increased marginally to CHF724.8bn in the latest week from CHF724.7bn the previous week which again suggested that the National Bank did not intervene significantly to weaken the Swiss currency. National Bank Chair Jordan stated on Monday that some of the inflation is certainly temporary while it was essential to secure price stability over the medium term. He added that policy would be tightened if inflation remained stubbornly above 2%.

The Swiss franc posted significant losses on Monday with the Euro advancing to 1.0430 while the dollar was unable to hold gains to 0.9340 and retreated sharply to in choppy trading with a break below 0.9300 triggering stop-loss selling. The dollar remained on the back foot on Tuesday and traded close to 0.9250.

 

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