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There were no significant economic data releases during Monday with trends surrounding Ukraine tensions and overall developments surrounding risk appetite tending to dominate. There was choppy trading across asset classes, although currency moves were relatively contained.

After testing support below 1.1300 against the dollar, the Euro and equity markets rallied following comments by Russian Foreign Minister Lavrov that there was scope for diplomatic progress. The move was, however, faded quickly as underlying tensions remained high. G7 financial officials reiterated that they were prepared to impose economic and financial sanctions on Russia if there is any further military aggression. German Chancellor Scholz stated that he expects clear steps from Russia for de-escalation and will meet with Russian President Putin on Tuesday while Ukraine President Zelensky reiterated that the country seeks to join NATO.

The Euro drifted back towards the 1.1300 area towards the European close, especially with concerns over the impact of any further surge in gas prices.

ECB President Lagarde stated that inflation is likely to remain high in the near term, but there was some evidence that bottlenecks may be starting to ease. The Euro dipped to lows around 1.1280 before settling around 1.1300 while commodity currencies remained vulnerable.

Narrow ranges prevailed on Tuesday with markets continuing to monitor the Ukraine situation very closely and the Euro edging higher to near 1.1320.




US Treasuries gradually lost ground in early US trading on Monday with the 10-year yield moving back to 2.00%. There was choppy trading in US equities, but futures were unable to sustain moves into positive territory as risk appetite remained fragile.

Kansas City Fed President George stated that the central bank had to be systematic in monetary policy and that it was always preferable to be gradual while she did not back a really fast move to neutral rates. She did add that the Fed would have debate a 0.50% rate hike at the March meeting if the data demanded it.

Richmond Fed President Barkin stated that it was time to normalise policy and underlying demand is strong. From a longer-term view that he was nervous that labour supply will be short in the decade ahead and this would tend to increase inflation rates in the services sector.

The latest New York survey recorded a decline in one-year inflation expectations to 6.0% from 5.8% previously, the first decline since late 2020 while 3-year expectations declined to 3.5% from 4.0%  Overall, the dollar edged higher to above 115.50 against the yen.

Japanese GDP increased 1.3% for the fourth quarter of 2021, marginally below consensus forecasts while Bank of Japan Governor Kuroda reiterated the need for a very accommodative monetary policy. Asian equity markets were resilient on Tuesday, but sentiment remained fragile amid underlying geo-political tensions while US yields edged lower. The dollar drifted lower to 115.30 in early Europe with the Euro around 130.50.




Trends in risk appetite tended to dominate Sterling during Monday, especially with a lack of front-line data releases. The UK currency rallied briefly ahead of the New York open following Lavrov’s comments but was unable to sustain gains as risk appetite remained fragile.

The UK currency, however, was broadly resilient given the vulnerability in risk conditions with support from expectations of further rate hikes.

Sterling was unable to regain 1.3550 against the dollar but did find support near 1.3500 into the European close while the Euro settled close to 0.8365.

The UK unemployment rate held at 4.1% in the three months to December, in line with expectations. There was a further 108,000 increase in employment for January to a fresh record high while headline average earnings increased to 4.3% from 4.2%. The data maintained expectations of further Bank of England rate increases over the first half of this year, although the impact was limited. Sterling traded around 1.3535 against the dollar with the Euro around 0.8365.




Swiss sight deposits increased marginally to CHF725.1bn in the latest week from CHF725.0bn previously which again suggested that the National Bank had not been intervening significantly to weaken the Swiss currency.

Fragile risk conditions continued to underpin the Swiss franc during the day with equities on the defensive and markets fretting over the Ukraine situation. The Euro dipped to lows near 1.0450 before finding support while the dollar settled with slight gains to 0.9260 before drifting to 0.9240 in early Europe on Tuesday. 


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