News & Analysis


The pound opened the week lower and touched its weakest level against the dollar since November 2020. This came as US yields rose more substantially than UK yields this morning, ahead of the FOMC and Bank of England monetary policy meetings of this week. While both central banks are expected to hike interest rates by 25bps, the Bank of England is more likely to focus on deteriorating growth conditions than the US. Even before the war, the BoE was forecasting an increase in unemployment and below-target inflation. Still, the Bank of England may want to avoid driving tightening expectations lower as UK CPI is set to remain elevated in the near-term and a stronger pound would help alleviate some of the pressure from imported energy prices. Today’s calendar is virtually blank for the UK, however, tomorrow’s UK jobs data may provide GBP traders with fresh signals ahead of Thursday’s monetary policy decision.


EURUSD hit fresh three-day lows in the APAC session overnight following a bout of broader USD strength but has pared back losses since. The Russian attack on Ukraine over the weekend is weighing on the single currency as the attack was close to the Polish border and brings the war closer to NATO. On Sunday, Ukrainian negotiator and presidential adviser Mykhailo Podolyak said in a video statement that Russia understood Ukraine wouldn’t concede on any positions, and that talks had become more constructive. This places continued focus this week on peace talks, which could relieve some of the pressure on the euro. European Central Bank President Francois Villeroy told France Inter radio that a cautious approach to monetary and budgetary policies is needed as the length and intensity of the oil shock remains uncertain, but this had no substantive impact on markets.


The US dollar is trading in the green against G10 peers this morning, with two narratives supporting the currency. Firstly, US Treasury yields are rising across the curve ahead of Wednesday’s FOMC meeting, as the inflationary backdrop globally sparks expectations for the Federal Reserve to hike interest rates both on Wednesday this week and on multiple other occasions this year. Russia-Ukraine has further bolstered inflation expectations, which means that markets are expecting the Fed to hike more often throughout the year – even as expectations for the March rate hike were toned down due to the uncertainties around the war. Secondly, an attack from Russia on a Ukrainian military training facility near the Polish border took a toll on risk sentiment as the attack brings Putin’s war closer to NATO. Fighting continued on the outskirts of Kyiv, while airstrikes on Mykolaiv on the Black Sea killed a number of civilians. National Security Advisor Jake Sullivan meets Politburo member Yang Jiechi in Rome today for the first high-level, in-person talks since Russia invaded Ukraine. The focus remains on peace talks this week, while at the same time, Russia’s military pressure has shown no signs of easing.


Friday’s session saw the loonie rise by a quarter of a percent after a surprisingly strong jobs report showed the Canadian economy recovered more than 1.5 times the number of jobs lost in January as a result of Omicron-related shutdowns. The loonie nearly doubled gains as traders parsed through the details of the data release, but this was largely retraced in the evening as the broader risk backdrop was hit by little-yielding Russia-Ukraine talks. This morning, losses extended with USDCAD rising close to Friday’s highs, following broader-based USD strength as markets await Wednesday’s FOMC decision. Crude oil, a strong driver of CAD price action, is trading within Friday’s ranges this morning. Optimism about steps towards de-escalation would see crude prices decline, which could add downside pressure on the loonie. Today’s calendar is light for Canada, with the weekly Nanos Confidence index – a sentiment indicator by Bloomberg – being the main release of note at 12:00 GMT.


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