EUR / USD
Euro-zone money supply growth slowed to 6.4% in the year to January from 6.9% previously. Euro-zone industrial sentiment increased marginally to 14.0 for February from 13.9 previously while there was a much larger improvement for the services sector at 13.0 from 9.1 in January. The overall business and consumer confidence index strengthened to 114.0 from 112.9 in January, but political developments tended to dominate.
Risk appetite was fragile in early Europe on Friday amid reports that Russian forced had advanced close to Kyiv. The Euro dipped back below 1.1200 against the dollar amid concerns over the Euro-zone outlook as choppy trading continued.
The US core PCE prices index increased 0.5% for January which was in line with expectations while the year-on-year rate increased to 5.2% from 4.9% and slightly above market expectations of 5.1%. Personal spending increased 2.1% for January after a revised 0.8% decline the previous month.
At this stage, markets expect that the Federal Reserve will push ahead with a 0.25% rate hike at the March meeting.
ECB President Lagarde stated that the central bank stands ready to take whatever action is needed to ensure price and financial stability in the Euro area.
Risk appetite strengthened sharply following reports that Russia was prepared to send a delegation to Minsk and hold talks with Ukraine. There was a dip in defensive demand for the US dollar and the Euro rallied strongly to highs above 1.1250 around the European close with further limited net gains into the US close.
Risk appetite, however, dipped again at Monday’s Asian open following the announcement of further sanctions against Russia and Putin’s warning that nuclear forces were on special alert. The Euro dipped to lows around 1.1125 in early dealings and remained vulnerable in early Europe as the dollar attracted defensive support while fresh tensions remained very high. Commodity currencies lost ground and the Euro traded just above 1.1150 with markets braced for further volatility.
US durable goods orders increased 1.6% for January after a revised increase of 1.2% and double consensus forecasts of a 0.6% gain while underlying orders increased 0.7% after a 0.9% increase the previous month. The data had little market impact given the focus on risk conditions
Although the 10-year bond yield hit resistance close to 2.00%, US yields moved higher on Friday which helped underpin the dollar. Wall Street equities also posted strong gains amid much stronger risk appetite which triggered a sharp decline in defensive Japanese currency demand.
The dollar secured a net advance to above 115.60 while the yen lost ground on the crosses and the Euro moved back above the 130.0 level.
Risk appetite dipped again in Asia on Monday with the S&P 500 index posting a decline of around 1.5%.
Asian equities were resilient while the decline in US bond yields was contained and the dollar was around 115.50 against the yen after finding support around 115.25.
In comments on Friday, Bank of England MPC member Mann stated that she voted for a 0.50% rate increase at the February meeting to dampen inflation expectations and she had seen little evidence that public expectations were easing. She also pointed to a global dynamic as Sterling could decline if the Bank of England lagged behind other major central banks and this would risk even higher inflation. There were still expectations that the central bank would back away from a 0.50% rate hike in March. Sterling overall was unable to make significant headway despite more favourable global risk conditions with an underling erosion of yield spreads in global terms limiting potential support. The UK currency was held close to 1.3400 against the dollar while the Euro strengthened to the 0.8400 area.
The fresh slide in risk appetite sapped Sterling support on Monday with lows around 1.3325 against the dollar before a tentative recovery while the Euro posted a significant net loss to around 0.8350 with further choppy trading in prospect with month-end position adjustment and fluctuations in global risk conditions.
The Swiss currency retreated sharply on Friday as the stronger global risk tone undermined potential support. The Euro strengthened to highs near 1.0450 after the Wall Street open while the dollar was able to post a net advance to around 0.9285 before fading.
The franc gained fresh backing on Monday as risk appetite deteriorated once again with the imposition of financial sanctions also triggering defensive franc demand. The Euro slumped to lows around 1.0310 before stabilising around 1.0335 while the dollar was unable to secure an advance and traded around 0.9260.