Yesterday’s risk rally faded today and European stocks followed Asia to open lower on Tuesday. Oil prices were around 2% lower, while gold was up 1%.
The US dollar was mixed as it fell against the yen but was firmer against the euro. The greenback dipped below 112 yen several times before rising just above it in mid-European session as risk-off sentiment boosted the yen. The euro continued its descent against the Japanese currency and was last at 123.30 yen – a near three-year low.
The euro has come under pressure this week as “Brexit” concerns and growing expectations of further monetary easing by the ECB in March are limiting the single currency’s appeal as a safe-haven.
Weaker-than-expected German Ifo figures out today added to Monday’s poor PMI numbers for the Eurozone. The Ifo business climate index fell for the third consecutive month to 105.7 in February from 107.3 in January. The reading was below forecasts of 106.7. The index’s constituents were mixed though as current conditions sentiment improved to 112.9 from 112.5 the prior month, beating estimates of 112.0. But expectations for future outlook deteriorated sharply, falling to 98.8 from 102.3, which was below forecasts of 101.6. The manufacturing sector was the biggest drag on future expectations due to weakening export conditions.
The euro hit a 3-week low of 1.0991 dollars after the data before rebounding to 1.1008 dollars. Against the pound, it hovered around the 0.78 handle for much of the session.
The pound was stuck near 7-year lows against the dollar and was struggling to hold above 1.41 dollars despite comments today from Bank of England policymakers questioning the market implied path of interest rates.
Speaking in a parliamentary hearing, BoE Deputy Governor Minouche Shafik said wage growth should pick up as the labor market continues to tighten. She also expects for interest rates to increase more quickly than implied by the market yield curve. Another MPC member, Martin Weale also warned of the upside risks to inflation, including from the recent slide in sterling.
Meanwhile, BoE Governor Mark Carney provided reassurances that the Bank still has tools at its disposal for additional stimulus should the economic situation warrant it.
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