Among the major currencies, the euro was able to recover ground on the dollar during afternoon trading on Tuesday, edging back towards the 1.135 level after yesterday’s IFO sentiment indices beat expectations. The current assessment index out of Germany rose to 98.6 this month from a revised 96.2, the sharpest increase in the measure since March last year. While the data doesn’t take into account the uncertainty created by the Russia-Ukraine crisis, it does at least reflect that business sentiment is recovering well from omicron-related concerns. As mentioned on Monday, speeches from ECB members Elderson and De Guindos will be closely watched today, with markets eager to see if recent upside surprises in Euro Area economic data translate into more upbeat assessments from Governing Council members.

Sterling also rose against the dollar on Tuesday afternoon – a move that we think has more to do with shifts in global sentiment than anything else. Bank of England MPC member Ramsden spoke yesterday, although his comments were not particularly newsworthy. He said that further tightening ‘seems likely’ in the near-term in order to prevent current high inflation becoming embedded, although there were downside risks to inflation from raising rates too aggressively. This morning will see a handful of MPC members, including governor Bailey, testify at the Treasury select committee. We will be paying particularly close attention to any clues as to the size of potential rate increases at the March Bank of England meeting and beyond.

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