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Dollar Consolidates as Sanctions are Placed on Russian Oil Imports

The US Dollar consolidated close to multi-month highs against several major pairs on Tuesday. The Dollar index continued to hold above the 99.0 level, its highest level since May 2020 as safe-haven demand continued to dominate financial markets. In a public address at the White House, US President Joe Biden announced an immediate ban on all Russian imports of oil, gas, and energy. 

Following these comments, crude oil prices continued to rise with the price of Brent crude oil trading above $130 per barrel and gaining more than 1% on the day. Although a cautious mood remains across financial markets, currency market volatility showed some signs of easing on Tuesday as safe-haven assets struggled to gather their recent strength. Elsewhere, it was reported the US trade deficit widened to a record high of $89.7bn in January, above the revised $82bn in December and above consensus expectations of $87bn.

Looking ahead to today, January Job Openings and the weekly Crude Oil Stocks Change data is scheduled for release, ahead of Thursday’s US inflation report. 

Concerns on UK Growth Start to Emerge

There were no major data releases yesterday but coordinated measures with other countries resulted in the UK announcing that it will be phasing out Russian oil imports by the end of the year. Concerns over the UK economy remain given a further jump in energy prices while there were also increased inflation fears which will make it increasingly difficult for the Bank of England (BoE) to set monetary policy. This has been slightly less optimistic in terms of the number of hikes there will be this year.

There are no UK releases of any note for the rest of the day leaving the direction of Sterling in the hands of risk sentiment. However, early on Thursday, the February Royal Institute of Charted Surveyors (RICS) housing price survey will provide evidence of whether the market remains buoyant for now.

Suggestions That Bond Issues Raise Single Currency

German industrial production increased 2.7% for January after a revised 1.1% increase the previous month and above expectations of 0.5%, however concerns remain about future reading given the ongoing situation in Ukraine. The single currency made gains as reports suggest that an emergency EU summit will be called tomorrow to discuss the issuance of joint EU bonds to finance a rise in defence and energy spending.

Looking to the day ahead, Italian industrial production will be the latest indication on trends in the factory sector for January. Tomorrow, the European Central Bank (ECB) meeting will be closely watched as economic forecasts are updated with the market deciphering rhetoric for clues on future monetary policy and the potential impact of the war in Ukraine.

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