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The final Euro-zone PMI services index was revised down to 55.5 from the flash reading of 55.8. There was further strong upward pressure on costs with the second-highest reading on record and selling prices increased at the fastest rate on record.

Minutes from February’s ECB council meeting noted that the main risk was no longer tightening policy too early but rather too late given the jump in reported inflation and that the inflation narrative needed to be changed. Markets, however, assumed that the commentary was out of date given the Ukraine crisis.

Markets continued to monitor Ukraine developments closely with aggressive rhetoric from Russian President Putin as he stated that Russia’s operation in Ukraine will be achieved in any case and again warned the West. Overall confidence in the Euro-zone outlook continued to deteriorate which sapped Euro support into the US open.

US initial jobless claims declined to 215,000 in the latest week from a revised 233,000 previously and below market expectations of 225,000 while continuing clams were little changed at 1.48mn. The latest employment report will be released on Friday, but a huge divergence from expectations will be needed to shift Fed expectations.

The ISM services-sector index dipped to a 12-month low of 56.5 for February from 59.9 previously and well below consensus forecasts of 61.0. There was also a sharp slowdown in the rate of growth in new orders and output while employment was reported as declining on the month, although this was related to an important extent by difficulties in hiring and people leaving the workforce.  Prices increased at a stronger rate on the month and close to the fastest rate on record.

Fed Chair Powell reiterated that interest rates needed to rise gradually and that he was willing to increase rates by more than 0.25% at meetings if inflation does not decline. He also stated that rate increases will extend beyond this year and the dollar maintained a firm tone against European units with the Euro drifting to 1.1050.

The Russian shelling of Ukraine’s largest nuclear power plant triggered a fresh dip in risk appetite on Friday with the Euro retreating to fresh 21-month lows just above the 1.1000 level. Risk sentiment is likely to be notably fragile on Friday, especially with unease over potential weekend developments in Ukraine.




There was choppy trading in Treasuries after the New York open on Thursday with little underlying change in yields and the dollar overall was unable to make headway, especially with weaker equities maintaining underlying demand for the Japanese currency. Global stagflation fears were also a key element during the day.

Cleveland Fed President Mester stated that it is critically important to get inflation under control and that the Ukraine crisis would put further upward pressure on inflation which makes it even more important for the Fed to take action. She continued to back a gradual approach in the short term, but if there is no move down in inflation by the middle of the year she considered this would be a signal that accommodation needed to be removed at a faster pace.

The dollar was unable to make further headway and the yen secured renewed support in Asian trading on Friday as equity markets moved sharply lower. High oil prices curbed yen backing to some extent. The dollar was held around 115.50 in early Europe with the Euro dipping below 127.0 before a slight recovery.




The UK PMI services index was revised down slightly to 60.5 for the final data from the flash reading of 60.8, but this was still the highest reading for eight months. Costs increased at the second-fastest rate in the past 25 years and the service prices increased at the strongest rate on record.  

The data had little impact with markets monitoring global risk conditions closely. UK equities moved notably lower during the day which hampered the UK currency to some extent with concerns over the risk of capital outflows from the UK in relation to sanctions on Russia.

Sterling gradually lost ground against the firm dollar and retreated below the 1.3350 level ahead of the European close while the Euro was able to hold just above 5-year lows. The UK currency was hampered by weaker risk appetite on Friday and held below 1.3350 against the dollar, but the Euro retreated to 5-year lows around 0.8265.




Swiss consumer prices increased 0.7% for February, well above expectations of 0.3% and the year-on-year increase strengthened to 2.2% from 1.6% which was above consensus forecasts of 1.7% and the highest reading since November 2008. The higher inflation rate could lessen National Bank determination to prevent Swiss franc gains. The currency also gained further support from a further deterioration in risk conditions with the Euro sliding to fresh 5-year lows around 1.10120 while the dollar was unable to make significant headway. The franc maintained a strong tone on Friday as Ukraine fears dominated with the dollar held below the 0.9200 level.


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