Spectrum FX Daily Market Update
Sanctions in Focus
Sterling
BoE member Cunliffe was the only BoE policymaker to have opposed last month's interest rate rise. Speaking at the European Economics and Financial Centre yesterday afternoon, Cunliffe commented that the war in Ukraine will continue to intensify the current cost of living crisis with energy and commodity prices likely to stay higher for longer, consequently having a negative impact on economic growth. The speech did not have an impact on sterling moves but does reiterate Governor Bailey's comments last week on higher inflation and slower growth which in turn could add to the argument that we could see the Bank of England refrain from future rate rises. For now, markets are still pricing in five more hikes by the end of 2022.
The only thing of note from the UK today is the Services PMI’s due out at 9.30am forecasted to show expansion of the sector is expected to have remained the same as the previous month.
Euro
The euro continued to a three-day slump with the performance of the currency tied to developments in Ukraine. This time last week we saw the euro strengthen on constructive peace talks in Istanbul but over the course of the week we have seen those hopes somewhat dashed following the devastating killing of civilians in Bucha over the weekend. As a result, it seems more likely that the EU will impose new sanctions on Russia, which in turn would be likely to have big implications for the energy market and larger potential impact on the euro
We have eurozone services PMIs due out at 9am today but this seems unlikely to have an impact on the euro itself with developments on sanctions and prices of oil and gas to be the key driver on the currency.
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USD
Yesterday we saw the US Treasury take action by halting dollar debt payments by the Russian government at the US banks. Russia will now have to choose to either drain its remaining US dollar reserves, spend new revenues or default on its debt.
There was no direct impact on the US dollar with the currency seemingly in a wait and see phase; waiting to see development in Ukraine as well as official lift off of a 50 bps rate hike in May.?
The US will release its own Services PMI’s this afternoon and we shall hear from Fed members Brainard, Daly and Williams.
Elsewhere
We saw further gains in the Australian dollar overnight after the Reserve Bank of Australia dropped the word ‘patience’ from its rate statement indicating a hawkish turn by the RBA with interest rate hike expectations now bought in from August to June. However, there is a caveat to this and the RBA commented that they would need to see wages grow significantly before taking such a move.?
The Australian dollar has now strengthened for the 11th consecutive week.?
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