Volatile markets continue with Russia-Ukraine taking centre stage
Thursday 3 March, 2022
Daily Currency UpdateChoppy trading conditions continued in financial markets yesterday against the backdrop of Russia-Ukraine. However, sentiment improved as the day progressed due to potential negotiations in the war. Sterling ended the day higher versus the US dollar and the euro on improved market sentiment. The demand for traditional safe haven currencies declined slightly. However the euro was unable to recover any ground against the US dollar. Sterling may also be benefitting from continued sentiment around the Bank of England increasing interest rates this month. With inflationary pressure on the rise, and the chances of energy prices increasing further, there is pressure on central banks to tighten monetary policy.
Key MoversAs expected, Eurozone inflation printed above the consensus. The headline rate rose to 5.8% in February versus an expectation of 5.4%, while the ex-food and energy reading jumped to 2.9%. However, these numbers are pre-war and hence there is expectation that inflation now could be even higher. UK CPI numbers posted a 30 year high in February, and again this number could be even higher this month. From a currency perspective, this is now a race to see who has the highest inflation levels and which central banks will increase rates faster and by how much. This may drive which currencies will outperform others. US Federal Reserve Chair, Powell, signalled that the Fed will hike rates at its next meeting, which will take place on March 16th. He opened the door to a 50bps increase at some point this year, which again could be higher if the impacts of oil and energy prices continue in their current path. Oil prices hit highs we hadn't seen since the financial crash of 2008, which could have a big impact on inflation in the US. This coupled with the risk aversion from the war, could see the US dollar outperform its peers in the coming months.
- GBP/USD: 1.3320 - 1.3395 ▲
- GBP/EUR: 1.2010 - 1.2110 ▲
- GBP/AUD: 1.8210 - 1.8510 ▲
- EUR/USD: 1.1030 - 1.1110 ▲