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Eurozone could face slower economic growth

Daily Currency Update

The Eurozone economy faces slower economic growth and higher inflation as Russia’s invasion of Ukraine disrupts trade, pushes up costs, and hits consumer confidence, a European Central Bank poll of economists showed on Friday.

The European Central Bank indicated at its latest policy meeting that it would adhere to its earlier guidance for a steady withdrawal of stimulus, saying that recent economic data did “reinforce its expectation” that its asset purchases should end in the third quarter.

The ECB also held off from raising interest rates on Thursday last week, however, they have hinted that we may see hikes as early as Q3 2022 which could provide the EUR with much-needed support.

Last week we saw UK inflation hit 7% in March, the highest rate since 1992, with an expectation of an even higher showing in April due to the rise in fuel and energy costs. There will be a lot of focus now on the next rate decision in May, where the Bank of England will likely raise its interest rates by 25bps to 1%.

Key Movers

In the US, inflation jumped 1.2% in March, bringing the year-over-year increase to 8.5%, slightly above expectations and a new four-decade high – since 1981.

The US dollar initially strengthened on hopes that inflation might be peaking, but the rally was short-lived as crude oil prices rallied back through USD 100 a barrel after Putin said peace talks with Ukraine had stalled.

PPI data was up 1.4% in March, bringing the year-over-year levels to 11.2%. Producer Price Index is generally seen as an indicator for future Consumer Price Index so it will be interesting to see where CPI data will be over the next couple of months and how the US Federal Reserve will react should it continue to rise. Fed President James Bullard reiterated that he would like to see interest rates at 3.50% by the end of the year.

Expected Ranges

  • GBP/USD: 1.2985 - 1.3055 ▲
  • GBP/EUR: 1.2025 - 1.2095 ▲
  • GBP/AUD: 1.7485 - 1.7655 ▼
  • EUR/USD: 1.0785 - 1.0855 ▲