Sterling reacted negatively when data released this morning showed UK retail sales unexpectedly falling in February as online shopping sank back to its levels at the start of the pandemic. The Office of National Statistics said sales volumes last month were 3.7% above their pre-coronavirus levels of February 2020, but the share of online sales in value terms was its lowest since March 2020. Overall sales volumes were down 0.3%, well below the 0.6% month-on-month rise economists had been expecting. The disappointing data followed a survey released overnight which pointed to further concerns for the economy ahead. The GfK Consumer Confidence Index fell for the fourth month in a row to -31 from -26 in February, its lowest since November 2020. Worryingly, the survey was taken before Russia’s invasion of Ukraine which is raising living costs higher.


Supported by improving market mood, the euro has managed to make modest gains against the dollar in early trading. Data released yesterday showed that Eurozone business growth was stronger than expected this month. Although the S&P Composite Purchasing Managers index, seen as a good guide of overall economic health slipped to 54.5 in March from 55.5 in February, it was comfortably above the consensus forecast of 53.9. A figure above 50 indicates growth. The breakdown of individual countries showed French business activity accelerating to an 8-month high as easing Covid restrictions boosted the service sector and eclipsed concerns about the Ukraine conflict’s impact on manufacturing. The IFO business sentiment index for Germany is released this morning and is expected to show a deterioration in business confidence. The index closely watched as an early indicator of business expectations, is forecast to show a decline to 92 in March from 99 in February.


The dollar remains steady in early trading, having found demand yesterday when jobs data helped firm expectations that the Federal Reserve Bank will be more aggressive in taking steps to curb inflation. Initial jobless claims fell to a seasonally adjusted 187,000 last week, the lowest since September 1969 and well below 212,000 forecasts. Following the data, Chicago Fed President Charles Evens said he would be comfortable raising rates at every policy meeting through to next March by 25 basis points each time but is open minded about a possible 50 basis point hike. Evans comments are in line with other recent comments by Fed officials and strengthened the market view that the central bank will raise rates by more than 25 basis points at its next meeting in May. Traders will look ahead to further speeches by Fed officials today for further reinforcement of this view.

Economic Calendar

10.00 EUR Ger IFO business sentiment
13.00 USD Fed Williams speech
14.00 USD Michigan Consumer sentiment
17.00 USD Fed Waller speech