News & Analysis


The pound’s vulnerability to the Russia-Ukraine conflict is more limited as the UK’s reliance on Russia for gas is less significant than the eurozone’s, with most of the UK’s gas supply coming from Norway. Still, moves in GBPUSD over the last days can be compared to EURUSD in terms of direction, though the moves were simply less severe. For today, UK money supply data will be eyed at 09:30 GMT, along with the final February Markit UK manufacturing PMI which is expected to print at 57.3. Also on the calendar will be Bank of England speakers Michael Saunders at the University of East Anglia, and Catherine Mann at Cleveland Fed on “Inflation and Monetary Policy”. Both members are on the more hawkish side of the spectrum, which is something markets usually take into account when they comment on policy expectations, however they will be the first BoE policymakers to speak out to media since the imposed sanctions from the West which means their comments could indicate what forms the shifting consensus at the Bank of England may take.


The euro remains vulnerable in the current environment, although it has recuperated losses since yesterday as market sentiment stabilised, with Monday’s unrest caused by sweeping Western sanctions against Russia now in the rear-view mirror. High-beta currencies were generally better bid along with the euro yesterday, however euro traders were more cautious this morning as they awaited German and Italian inflation data, which may act as preludes for tomorrow’s eurozone CPI. On the geopolitical front, Ukraine moved to solidify its bond with the West on  Monday by applying to join the European Union, while the first round of Ukraine-Russia talks concluded with no deal but an agreement to continue discussions. The move by Ukraine is largely symbolic, as the country is a long way away from reaching the standards for achieving EU membership, however, European Commission President Ursula von der Leyen stated on Sunday “we want Ukraine in the European Union”.  Today’s data calendar for the eurozone is packed with key releases, however most focus will be on the CPI figures from Italy and Germany at 10:00 and 13:00 respectively, especially given that the geopolitical developments make the inflation outlook anything but certain.


Market sentiment stabilised somewhat over the course of yesterday as the initial market reaction on the new tranch of sanctions from the west wound down, although market participants remain cautious. The US dollar walked down from Monday morning’s highs along with other safe haven currencies and Treasuries, while the Scandinavian currencies found some poise. The odds of a 50bps rate hike at the March FOMC meeting took a hit on Monday due to the developments surrounding Russia-Ukraine and the related sanctions on Russia, however it should be noted that the inflationary risks from the conflict in Europe could actually embolden policy expectations in the more medium-term as the geopolitical events have less of a growth impact on the US than e.g. on the eurozone, while inflation risks remain are tilted to the upside. The US dollar may find support in expanding monetary policy divergences in the more medium run because of this, along with the safe haven flow. As a response to yesterday’s sanctions, Russia’s President Vladimir Putin banned all Russian residents from transferring foreign currency abroad, hardening capital controls as part of a retaliatory package. The steps will take effect today. Today’s economic calendar for the US is light, however volatility is likely to remain high given the ongoing geopolitical developments.


USDCAD fell to over two-week lows this morning despite crude oil prices, which often move in tandem with the loonie, being significantly lower than yesterday. Moves in USDCAD are in that sense similar to how USDNOK has been trading over the last 24 hours: despite lower oil prices overnight and this morning, as the move in crude prices unwound following the change in risk sentiment since Monday’s open, the weakening of the US dollar meant both currency pairs traded around fresh 2-week lows this morning. One explanation is that Crude prices still continue to trade at very high levels, despite the unwind since yesterday, as the commodities outlook remains uncertain given ongoing geopolitical developments. Looking at today’s price action, much of the volatility is going to be related to further developments between Russia-Ukraine, possibly overshadowing today’s December and Q4 GDP data from Canada at 13:30 GMT.


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