Spectrum FX Daily Report

GBP:?The British Pound rallied following this morning’s data release that showed inflation had accelerated again in the U.K. in February, increasing the pressure on the Bank of England to keep raising interest rates despite the financial turbulence. In fact, the consumer price index rose 1.1% on the month, well above the 0.6% rise expected, taking the headline annual rate back up to 10.4% - analysts had expected it to fall below 10% for the first time since August. Looking forward, the Bank of England is set to announce its latest policy decision tomorrow, and is likely to authorize its 11th?consecutive rise. This comes even after Governor Andrew Bailey had hinted that the rate-hiking cycle may be coming to an end at his last press conference. Ultimately, all the policy-makers at the major central banks are having to make judgments about the balance between fighting inflation and banking sector stability.

EUR:?The Euro surged higher yesterday as European financial markets continued to stabilise following government and central bank interventions over the weekend. In fact, increasing bets on further rate rises from the European Central Bank added to the single currency’s upside as policymaker Pablo Hernandez de Cos added his voice to a chorus of rate setters calling for more hikes. Looking forward, ECB policy expectations could continue to drive EUR movement this week. In fact, the bank’s President Christine Lagarde and Chief Economist Philip Lane are both due to speak and more hawkish comments could further support the Euro.

USD:?The U.S. dollar traded near five-week lows in early European trade this morning, ahead of the latest Federal Reserve interest rate decision. The recovery in risk sentiment as the week has progressed has weighed on the safe-haven dollar, but losses are minor as the focus is squarely on the conclusion of the Federal Reserve's two-day policy-setting meeting later in the session. Just a month earlier, the market was pricing in a reasonable chance of a 50-basis point hike, but the sudden bout of financial instability has complicated monetary policy decisions that had been tightly focused on raising interest rates to fight inflation. Ultimately, the U.S. central bank is now widely expected to increase rates by 25-basis points, with a minority expecting the Fed to keep interest rates unchanged.

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