Awaiting the Central Bank decisions

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Bank of England has some tough discussions ahead

What a time to be a central banker! Imagine trying to grapple with rising inflation while worrying what effect the war in Ukraine will have on growth.?

There have been very few comments from MPC members recently, so the market is struggling to gauge their mood ahead of their meeting next week, or ahead of the energy price cap increase, or ahead of the increase to national insurance contributions in April.

Mortgage rates are rising though and that reflects the view that lenders believe that rates look likely to rise further.

The price of oil has moderated a little, but while we still have a war in Ukraine, risk remains that the oil price may well rise further. Relations between the West and the Middle Eastern oil exporters are still difficult, especially with the Saudi Crown Prince, so it may be a good thing that Boris bought himself plenty of time by only committing to ban Russian imports by year-end.?

In the market, the mere hint of a negotiated settlement saw risk aversion begin to bottom out.?Sterling posted gains against the dollar, to just shy of 1.32, where we open this morning and we’re around 1.1920 against the Euro.?

Market continues to debate size of Fed rate hike

The US has a similar central banking story. Fed members have largely been keeping radio silence over what size rate hike they'll likely vote for at their meeting next week.

Non-farm payrolls have delivered upside surprises for the past two months, but job vacancies remain at historic highs, close to 11.5 million. This is causing a level of wage inflation that the Fed is concerned about and that is fuelling the debate between whether we'll see a 25bp or 50bp rate hike.

Naturally 0.25% is a more conservative approach and buys time for Ukrainian to play out further, while 0.5% is a bold statement of intent. That would help catch up the inflationary curve and should help temper the inflationary effect of increasing energy costs, but it really could go either way.?

The recent dollar rally calmed down yesterday as a little risk appetite returned to the market. The dollar index fell to 97.85 and any predictions that we may see the 100 level now look a little premature.

ECB unlikely to raise rates this year

With inflation on the up and activity/output declining, ECB president Christine Lagarde is facing a tricky test at today's rate setting meeting.

Any pressure to start increasing interest rates is likely to have eased following the Russian invasion of Ukraine as the negative economic outlook has increased significantly, despite increasing inflation.

The sanctions will have a negative effect on growth, and the significant decrease to energy imports will have a major impact on the larger economies, like Germany. Any expectations of an ECB rate hike this year have faded and it is now generally agreed that the ECB will begin its tightening cycle in 2023.?

The euro reacted positively to the possibility of a negotiated settlement in Ukraine, rumours of which appeared yesterday. Yesterday, the single currency rose to a high of 1.1095, closing at 1.1070