News & Analysis


The pound was one of the better performers both yesterday and this morning despite the ongoing risk-aversion theme, as market conditions haven’t weighed massively on the pound so far. Inflation fears remain prominent in the UK, but these are remarkably lower than in the eurozone as the UK imports most of its natural gas from Norway rather than Russia. Bank of England’s Silvana Tenreyro acknowledged in a speech yesterday that inflation is set to rise further in the next few months due to external factors, and that the BoE will act if wage pressures require it. The 1Y1D market implied rate for the Bank of England – an indicator for market pricing around rate hikes in the next year – has been sitting at fresh highs since Tenreyro’s comments after the indicator had initially weakened following the Russia-Ukraine conflict. Money markets are still pricing in around 115bps of UK rate hikes this year, which is lower than the 130bps before the Russian invasion, but the Bank of England remains on the more hawkish side of the spectrum compared to G10 central banks. Today’s focus will be on UK purchasing managers’ index figures which are released at 09:30 GMT. These should confirm a further recovery as the UK loosened Covid restrictions far earlier than eurozone countries.


The euro went offered in yesterday’s session as the ongoing war in Ukraine remained front and centre, while the single currency slid through 2020 lows against the pound and printed at its lowest levels since December 2019 this morning. Inflation fears in the eurozone remain plentiful with European natural gas prices having surged as much as 60% since Tuesday as fears were compounded by traders trying to avoid exposure to Gazprom. Shell Plc and UK energy supplier Centrica Plc are among the larger companies that have stated they will exit Russian gas-supply agreements, which also aided the price surge to the record-high on Wednesday. Russian pipe flows to Europe are continuing normally, but the outlook remains highly uncertain. Today’s data calendar for the eurozone is packed with releases, however the focus on Russia-Ukraine means the market impact may be limited. Purchasing managers’ indices are expected throughout the morning, while the ECB publishes its minutes of the February meeting at 12:30 GMT.


The US dollar traded slightly lower yesterday despite the surge in Treasury yields and expressed support from Fed Chair Jerome Powell for a quarter-point rate hike in March. Powell stated to the House Financial Services Committee that he supports a 25bp hike in March, but left the door open for a larger hike should inflation remain too hot. Most took from this that a 50bp hike wasn’t likely this early, but may occur at a subsequent meeting. Comments by Fed officials, although didn’t raise the probability of a 50bps hike from the Fed, did help reflate expectations of 2022’s rate profile – markets are now pricing 144.55bps of hikes, up from 120bps yesterday. Expectations for policy tightening had been falling previously given the ongoing conflict in Ukraine. The UN General Assembly voted yesterday to denounce Russia for invading Ukraine and demanded that Moscow withdraws its military forces – an action that aims to diplomatically isolate Russia at the world body. Meanwhile, US President Joe Biden said he is open to implementing a ban on importing Russian oil and gas. Although the US has not yet targeted Russian commodities as part of its sanctions, US traders have already acted to put such imports on hold, disrupting energy markets. For today, markets will keep an eye on another round of Powell testifying and the release of the ISM services index.


The Canadian dollar led gains in the G10 space yesterday, with USDCAD dropping 0.88%. While the reaction in the loonie wasn’t directly in response to the BoC raising rates by 25bps, the more hawkish than expected undertones in the BoC rate statement likely fuelled the better rally in CAD. The bid was broad-based in G10 “risk currencies”, with CAD, GBP, AUD and NZD all rallying in the G10 space. The Bank of Canada’s rate announcement saw the loonie whipsawing, with an immediate CAD appreciation quickly reversing before turning into a firmer uptrend throughout the day. Today, the focus will be on BoC Governor Tiff Macklem’s economic progress report, where the Governor is largely expected to lay out the Bank’s plans for quantitative tightening after Wednesday’s decision to hike rates. This could lead to another volatile session for the loonie. Macklem is set to lay further groundwork for quantitative tightening in April at today’s economic progress report, however, markets are unlikely to price in this scenario in the coming weeks already as the Bank has laid out reasonable caveats for more conservative tightening due to the ongoing conflict.



This information has been prepared by Monex Europe Limited, an execution-only service provider. The material is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is, or should be considered to be, financial, investment or other advice on which reliance should be placed. No representation or warranty is given as to the accuracy or completeness of this information. No opinion given in the material constitutes a recommendation by Monex Europe Limited or the author that any particular transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research, it is not subject to any prohibition on dealing ahead of the dissemination of investment research and as such is considered to be a marketing communication.