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The Euro-zone current account surplus declined to EUR23bn for December from EUR24bn in November. For 2021 as a whole, the surplus increased to EUR310bn from EUR213bn in 2020 and equivalent to 2.6% of GDP. The data illustrates that there will be important underlying Euro support if there is a reversal of capital outflows from the Euro area and an increase in global weightings for Euro-zone assets.

There were reports from ECB sources that officials are edging towards a rate hike this year to stem inflation pressure. Further reports suggested that asset purchases were likely to end in September with a potential rate hike in December which helped limit the potential for Euro selling.

Euro-zone consumer confidence edged lower to -8.8 for February from -8.5 previously and weaker than expected.

As far as US monetary policy is concerned, Chicago Fed President Evans stated that policy had been wrong-footed on inflation, but may not need to become restrictive and he still expects that much of the inflation is due to supply and pandemic shocks which will ease.

New York Fed President Williams stated that he expects it will be appropriate to raise rates in March, but there were no indications whether he would back a 0.25% or 0.50% rate increase. Fed rhetoric will continue to be monitored closely in the short term with overall expectations of a 0.50% rate hike fading slightly.

Late in the European session, there were reports that there had been a larger explosion in Donetsk which raised fresh concerns over the overall Ukraine situation and the Euro dipped lower. There were also concerns over Russian military exercises over the weekend and the Euro retreated to near 1.1320.

CFTC data recorded a further net increase in long Euro positions to near 48,000 in the latest week, the largest position since August 2021.

After a hesitant start in Asia, the Euro advanced significantly to around 1.1370 in early Europe as risk appetite recovered and the dollar failed to gain wider support.




US existing home sales increased to an annual rate of 6.50mn from a revised 6.09mn the previous month and above consensus forecasts of 6.10mn.

Despite firm data, US Treasuries continued to rally after Friday’s New York with the 10-year yield declining to around 1.93%. Wall Street equities also moved lower which maintained an element of defensive yen support as wider risk appetite was sapped by weaker risk conditions. The dollar was unable to make significant headway as it traded close to the 115.00 level against the Japanese currency.

US President Biden stated that he was convinced that Russian President Putin had already decided to invade Ukraine. Risk appetite remained on the defensive in early Asia on Monday, but there was a recovery later in the Asian session following reports that there could be a summit meeting between Biden and Putin.

Japan’s PMI manufacturing index declined to a 5-month low at 52.9 from 55.4 previously with sharp upward pressure on costs while the services sector contracted at the fastest rate since May 2020. The yen lost some ground on the crosses as equities moved into positive territory and the dollar was held close to the 115.00 level.




Sterling held a firm tone in European trading on Friday with further support from high money-market yields and expectations of a further rate hike at the March policy meeting. The UK currency failed to hold above the 1.3600 level against the dollar and gradually moved lower amid a firm US dollar and weaker global equities. With risk appetite vulnerable, there was a net retreat to near 1.3580 against the US currency.

CFTC data recorded a move to a small net long Sterling position in the latest week and the first long position since November. The shift will limit the scope for another round of Sterling buying unless there is a further increase in yields, but an easing of coronavirus restrictions will help underpin Pound sentiment.

Sterling drew some support from a tentative recovery in risk appetite on Monday and moved back above 1.3600 against the dollar while the Euro edged above 0.8340.




The Swiss franc posted a further net advance on Friday with on-going support from vulnerable risk conditions and reservations over the Ukraine situation. There was inevitable reluctance to sell the franc ahead of the weekend given concerns over geopolitical tensions.

The Euro dipped below the 1.0450 level against the franc and the dollar secured only marginal gains to just above 0.9200. The franc edged lower on Monday amid hopes that there would be a Ukraine-Russia summit, but market conditions remained nervous.  


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