Sterling has managed to gain modestly this morning after a torrid time yesterday. The pound suffered from a market flight from riskier assets and disappointing PMI surveys, losing around a cent against the dollar and 0.75% against the euro. The Purchasing Manager indexes for manufacturing and services industries showed that business activity cooled unexpectedly this month to an 11-month low. Looming pollical concerns are also a concern for sterling as Prime Minister Johnson fights to shore up his premiership after his office said on Monday his birthday in 2020 was marked by a gathering in Downing Street, adding fuel to an investigation into government parties during Covid lockdowns. European Commission Vice-President Maros Sefcovic said on Monday discussions with the UK could resolve Northern Irish challenges if goodwill was maintained, after talks with Foreign Minister Liz Truss. The Office for National Statistics reported this morning that the government borrowed less than expected last month and revised down the size of the budget deficit in previous months. Public sector net borrowing, excluding state banks totalled £16,848bln less than the forecasted £18.5bln.


The euro remains on the back foot, trading near to two-week lows against the dollar. The single currency struggled, despite strong Purchasing Managers Indexes from Germany, which prompted ECB governing member Francois Villeroy de Galhau to reiterate his hawkish stance, and a monthly report from the Bundesbank warning that inflation developments may take longer to improve. The European Parliament yesterday warned Russia that it will face massive consequences and severe costs if it takes military action against Ukraine and traders have warned the euro could suffer if Moscow responds by curbing energy supplies to Europe.


As safe haven flows continue to dominate financial markets amid escalating geopolitical tensions the dollar continues to remain in demand. The US dollar index climbed to its highest level on Monday before retreating modestly overnight. According to the latest reports, Russia has deployed around 100,000 troops alongside heavy weaponry at the Ukrainian border and markets grow increasingly concerned about a possible invasion. In response, the White House has announced that more than 8,000 troops were put on high alert and ready to be deployed. The Federal Reserve Bank begins a two-day policy meeting later today, and traders will be anxious for any hints on the timing and pace of rate hikes, as well as about how fast the central bank will shrink its more-than $8 trillion holdings of treasuries and mortgage debt.

Economic Calendar

14.00 US Housing Price Index
15.00 US consumer confidence