Key Powell comments on Tuesday.

The Euro-Zone Sentix business confidence index recovered further to -8.0 for February from -17.5 previously and well above consensus forecasts of -12.9.

According to Sentix, the latest increase signals that a recession is off the table for the time being. Instead, the scenario of stagnation is more likely.

The US employment trends index strengthened to 118.7 for January from 116.3 previously, maintaining confidence in a strong labour market, although there was also evidence of a slowdown in wage increases.

The dollar overall posted further gains on Monday with further support from the much stronger than expected jobs data on Friday.

The dollar index overall posted a 4-week high before a tentative correction.

The UK PMI construction index edged lower to 48.2 for January from 48.8 the previous month. This was below consensus forecasts of 49.6 and the lowest reading for 32 months. New orders and employment also continued to decline for the month, but there was a rebound in business optimism to a 6-month high.

There was a further net easing of cost pressures with the second-slowest rate of increase since December 2020.

There was further hawkish rhetoric from Bank of England MPC member Mann who commented that the central bank needed to stay the course and that in her view the next move is still likely to be for a further hike rather than for a cut or hold in rates.

She added that there were still upside inflation risks and monetary policy needs to lean against these risks. She also added that any pause in rates would look too much like fine tuning to be good monetary policy

The Australian Reserve Bank announced a further increase in interest of 25 basis points to 3.35%, in line with consensus forecasts.

The RBA warned that further rate hikes were likely and the overall rhetoric was more hawkish than expected which supported the Australian dollar.

Fed Chair Powell is due to make remarks on the economy in a discussion on Tuesday. The comments will inevitably be watched very closely with expectations of a hawkish stance following last week’s jobs data.

The Euro was unable to gain support from the latest Euro-zone data and gradually lost ground during the day. The dollar continued to gain support from Friday’s very strong jobs data. The currency index hit 4-week highs before a limited correction. EUR/USD dipped to lows at 1.0710 before a tentative recovery to 1.0740 on Tuesday.

US yields continued to move higher which underpinned the US currency and undermined the yen. USD/JPY posted 4-week highs at 132.90 before a limited correction.

Japanese data recorded the strongest increase in cash earnings since 1997 which reinforced speculation of a more hawkish Bank of Japan stance. USD/JPY retreated to the 132.20 area on Tuesday.

The Swiss franc overall regained some ground amid fragile risk conditions. EUR/CHF dipped to near 0.9950 with slight net USD/CHF gains to 0.9265.

Sterling was hampered by the latest data, but hawkish BoE rhetoric provided some relief. Barclaycard data also reported stronger than expected consumer spending for January. GBP/USD dipped to lows just above 1.2000 before a correction to 1.2030 on Tuesday.

Commodity currencies remained under pressure for much of the day before a tentative recovery. USD/CAD settled with net gains to 1.3440 from 1.3475 highs with a retreat to 1.3425 on Tuesday. AUD/USD dipped to lows at 0.6855 on Monday before a tentative recovery. The more hawkish than expected RBA stance boosted the Australian dollar. AUD/USD strengthened to 0.6950 before consolidation around 0.6930.

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