Sterling found support on dips as global risk appetite improved.

ECB council member Kazimir stated that the central bank should deliver two more interest rate increases of 50 basis points in February and March despite an easing in inflation pressures.

Kazimir also stated that it was essential to focus on underlying inflation.

In its latest monthly report, the German Bundesbank stated that the economy likely stagnated in the fourth quarter of 2022, but this was a better performance than expected previously.

The German central bank also stated that recent indicators have been better than expected while stresses in the energy market are easing and supply-chain bottlenecks are slowly dissipating.

The latest Euro-Zone, UK and US PMI business confidence data will all be released on Tuesday. The data will be watched closely to assess the overall economic outlook and the relative outlook for major economies. Consensus forecasts are for the Euro-Zone services sector to edge into expansion with further contraction for all other components.

Equities were able to make further headway on Monday as gains on Wall Street sparked a further advance. US indices posted 6-week highs amid hopes for a global economic rebound.

The dollar posted limited net gains at times on Monday, but was unable to sustain the gains, especially with fresh buying for commodity currencies.  The yen also recovered from intra-day lows.

The UK government borrowing requirement for December surged to £27.4bn from £10.7bn the previous year and the highest December deficit on record.

There was a surge in spending on energy-support schemes and debt interest payments also increased further.

Chinese markets will remain closed all week for the lunar new-year holidays.

The Euro was unable to make further headway on Monday and drifted lower despite hawkish ECB rhetoric. The dollar recovered some ground as US yields moved higher. There was also speculation that the dollar was oversold, but with US selling on rallies. EUR/USD retreated to just below 1.0850 before a recovery to 1.0885 on Tuesday.

Higher US yields initially undermined yen support with USD/JPY posting gains to highs of 130.90. USD/JPY dipped again to near 130.00 on Tuesday after stronger than expected Japanese inflation data before settling just above this level.

The Swiss franc lost ground despite a decline in Swiss sight deposits to 5-year lows. EUR/CHF advanced to 1.0030 before stabilising with USD/CHF at 0.9120.

Sterling found support on dips as global risk appetite improved and was resilient despite the budget deficit data. GBP/USD dipped to 1.2325 before a recovery to near 1.2400.

Commodity currencies retreated slightly from intra-day highs as the dollar recovered some ground, but secured fresh support on Tuesday. AUD/USD settled around 0.7000 before a net advance to near 0.7050 in Asia on Tuesday. USD/CAD found support below 1.3350 and settled just above this level on Tuesday.

Economic Calendar

09:30UK Flash Manufacturing PMI45.445.3
09:30UK Flash Services PMI49.649.9
14:45US Flash Services PMI45.344.7

*All rates shown are indicative of interbank rates and should only be used for indication purposes only. It is important to note that foreign exchange rates fluctuate and that rates may vary depending on the amount and the base currency that is purchased or sold. Rates are correct as of 8:00am UK time. CentralFX are not responsible for the rates shown.