Market Update 3rd March 2022

3/3/22

By Alfie Warman

Good morning, here’s your Thursday morning update.?

Russia has taken its first major city overnight as Kherson is now under the control of Russia. The market has understandably reacted in a sour manner, as Ukrainian president Zelensky vows that the continued aggression will be met with resistance. 1,000,000 Ukrainian residents have fled the nation, and more is expected in the next few days. Reports of a diplomatic discussion has been side lined and investors remain sceptical about any immediate resolution.?

?Both key pair currencies trading against the Dollar continue to post negative territory as the greenback remains the source of strength for investors. The safety of the Dollar after renewed risk off trading following the news regarding Kherson has seen it DXY reach its highest level since June 2020. The Dollar was further supported by Powell’s hawkish Fed policy remarks late on Wednesday, giving the greenback the green light for a March hike. A 50bp hike isn’t unimaginable now, with Powell open to this if the initial hikes do not help battle inflation. Addressing the Ukraine conflict, he said the impact on the US economy is minimal, but the risk of the unknown is affecting the market.?

?GBPUSD remains comfortably below 1.34. Boosts to risk sentiment, such as talks of a diplomatic solution, saw a Pound recovery Wednesday, but this morning's headlines drove the pair down again. The firm USD saw the EURUSD claw away at the top end of 1.10. Still below 1.11, the pair are again at the mercy of the geopolitical conflict. Jobless claims, Markit Services, ISM Services and further testimony from Powell all comes from the US today and could prompt further support for the dollar.?

?GBPEUR is up as the Euro continues to show weakness. The Euro has become exposed by the conflict in Ukraine, as growth forecasts now come with a large downside risk. BoE and ECB policy makers have both addressed risks attached to the conflict, however the risk-sensitive sterling rose with risk assets. The pair trade north of 1.20 and with the current climate it is likely to remain in similar territory. A major catalyst for the pair could be the ECB meeting next week, and the following weeks BoE meeting.?

?The story out of Ukraine continues to dominate market flows and will do for the immediate future. The long-term consequences are unknown, but there is optimism that there could be some positive discussion between Ukraine and Russia as the week closes out.