Gentium FX | Daily Report - 30th March 2022 - Euro Strengthens Across the Board

Sterling has been left vulnerable to the recent re-pricing of the Bank of England tightening expectations and has therefore been unable to benefit from improved Ukraine-Russian related risk sentiment. It wouldn’t be a major surprise to see Sterling test a little lower come the end of the week. More medium to long term, Sterling should strengthen as the Bank of England and European Central Bank’s divergence in monetary policy remains wide. Furthermore, the Ukraine war looks to have affected the Eurozone harder than it has the UK. The UK economic calendar today remains light, with the only highlight being a speech from Bank of England deputy Governor Ben Broadbent.

The Euro rallied around 1% yesterday on the back of increasing optimism around a peaceful resolution of the Ukraine war. Today, the Euro may find support from March inflation figures for Germany and France. The Eurozone figures will be published on Friday. The German inflation figure largely driven by higher energy prices looks to have broken the 6% barrier. This should keep alive the markets expectations on the European Central Bank tightening in 2022. Today we will also hear from ECB President Christine Lagarde. Investors expect around 60bp worth of ECB hikes by the end of 2022.

Yesterday, the advancement in peace negotiations between Russia and Ukraine prompted investors to unwind some of their defensive Dollar positions, increasing worldwide risk sentiment. The US Dollar remains well positioned due to the Federal Reserve accelerating the pace of tightening where 50bp tightening is expected in both May and June. Fridays employment data could support further Fed tightening so investors will keep a watchful eye on this. On the Russia-Ukraine front, markets will monitor to see if Russia does indeed de-escalate military operations around Kyiv and whether this could in fact pave a way to a ceasefire.