Central bank complacency risk
Bank of England chief economist Haldane stated that there is a risk that central bank complacency could allow the inflation cat out of the bag and that there might be a more sustained rise in inflation than expected.
Sterling was undermined by more fragile risk conditions with the UK currency dipping against the dollar before a recovery. The Euro strengthened with Sterling still securing underlying support amid optimism over the vaccine programme.
Firmer risk conditions underpinned Sterling on Monday as it recovered to near 1.4000 against the dollar with the Euro edging lower to 1.1560.
US personal income increased sharply by 10.0% for January as the stimulus measures and an increase in benefits boosted incomes. Spending increased 2.4% for the month following a 0.4% decline the previous month and in line with market expectations.
The core PCE prices index increased 0.3% for January for the second successive month with the year-on-year rate edging higher to 1.5% from 1.4%.
The Chicago PMI index retreated to 59.5 for February from 63.8 previously and slightly below forecasts of 61.0. There was a significant slowdown in new orders growth to the weakest level since August 2020 with some supply constraints in evidence.
Over the weekend, the House of Representatives passed the $1.9trn fiscal stimulus Bill with the legislation now passing to the Senate with a recovery in risk appetite.
There was a dovish attitude from ECB officials during Friday which undermined the Euro. Council member Schnabel stated that the central bank may need to add support if the rise in yields hurts growth. Fellow member Stournaras commented that the central bank should accelerate the rate of PEPP bond purchases. Visco stated that extreme prudence must be used before exiting support measures, although he also acknowledged that inflation expectations were on the rise.
The Euro overall weakened into the New York open, especially with fragile risk conditions and the Euro dipped towards the 1.2100 area against the dollar.
Data To Watch
04:30 – GBP – Final Manufacturing PMI
10:00 – USD – ISM Manufacturing PMI
11:10 – EUR – ECB President lagarde speaks