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The German IFO business confidence index strengthened to a 5-month high of 98.9 for February from a revised 96.0 the previous month and well above consensus forecasts of 96.5. The current conditions component increased to 98.6 from 96.2 while the expectations index registered a larger improvement to 99.2 from 95.8.

The IFO commented that the German economy is expecting an end to the coronavirus crisis, but supply bottlenecks continue to be a problem while rising energy prices will also be a drag on business. The Euro had already recovered some ground and posted a further advance following the IFO data with a peak just above 1.1360.

Markets were continuing to monitor the Ukraine situation closely and overall risk conditions improved, but gas prices increased sharply as Germany stated that the Nordstream 2 pipeline would not be approved for use and the Euro faded from highs.

According to flash February data, the US PMI manufacturing index strengthened to 57.5 from 55.5 the previous month and above consensus forecasts of 56.6. The services-sector index recovered strongly to 56.7 from 51.2 previously and well above market expectations of 53.0. There was solid growth in new orders for the month while inflation pressures intensified with goods and services prices increasing at the fastest rate on record.  There was also evidence that companies were accelerating buying plans in an attempt to beat price increases which increased supply-side problems.

The much stronger than expected print for the services data underpinned confidence in the US outlook and the dollar secured a limited net gain while the Euro drifted weaker. Risk appetite stabilised later in the day as Western countries concentrated on financial sanctions and the Euro traded around 1.1320 on Wednesday.




US Treasuries lost ground ahead of the New York open with significant relief that risk appetite had not deteriorated further. Equities briefly moved into positive territory and the 10-year yield moved above the 1.90% level.

US consumer confidence edged lower to 110.5 for February from a revised 111.1 previously, but this was slightly above market expectations. Elsewhere, the Richmond Fed manufacturing index declined to 1 from 8 previously and below expectations of 10 while pricing pressures eased slightly on the month.

The Case Shiller index recorded an increase in house prices of 18.6% in the year to December from 18.3% previously. A recovery in yields and steady risk appetite curbed potential yen demand and the dollar recovered to highs above 115.20 before fading again as US equities reverted to negative territory.

Atlanta Fed President Bostic stated that the central bank needs to move away from its emergency policy stance and can do so without jeopardising employment.

The yen maintained a solid tone on the crosses with Tokyo markets closed for a holiday and the dollar was held just above 115.00 in early Europe on Wednesday.




The UK CBI industrial orders index edged lower to 20 for February from 24 in January and slightly below consensus forecasts of 25. Output growth remained firm for the month while the number of manufacturers expecting higher prices increased to the highest level since 1976.

Bank of England Deputy Governor Ramsden stated that further moderate increases in interest rates were likely over the next few months. He did, however, emphasise that rates were not likely to rise sharply to levels of 5.0% or higher and suggested a gradual approach was likely.

The comments provided no currency support with a slight dip in expectations that the Bank of England could decide on a 0.50% rate hike at the March policy meeting. Sterling lost ground with lows near 1.3540 against the dollar as the Euro rallied to just above 0.8380. There was support on dips with a rally into the European close. Risk conditions looked to stabilise on Wednesday which helped underpin the Pound, although tensions inevitably remained high. Sterling traded just below 1.3600 against the dollar with the Euro around 0.8335. Comments from Bank of England members will continue to be monitored closely during the day.




The Swiss franc was unable to gain fresh support on Tuesday and posted sharp losses during the day amid hopes that damage from the Ukraine situation could be contained. From lows below 1.0350, the Euro rallied strongly to highs above 1.0450 while the dollar was able to secure net gains to above 0.9200.

Choppy trading will inevitably continue in the short term with markets continuing to monitor risk and yield trends. The franc resisted further selling on Wednesday with the Euro around 1.0430 and the dollar just above the 0.9200 level. The prospect of rate hikes elsewhere limited potential support for the Swiss currency.


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