Risk sentiment chopped and changed throughout the week as all eyes remained on Russia-Ukraine developments. Russian forces intensified their aggression in the earlier parts of the week, while at the same time Russia told Ukraine it is ready to halt military operations “in a moment” if Kyiv meets a list of conditions. Following signs of de-escalation from the Kremlin, comments from Kyiv suggested that government officials are open to discussing Russia’s demand for neutrality as long as its security is guaranteed, but won’t cede a “single inch” of territory. Upon the response from Kyiv, markets took the developments as a sign of re-opening diplomatic channels, allowing risk currencies like SEK, NOK and the euro to partially recover. The European Central Bank meeting briefly led to a further recovery in the euro as the initial statement was hawkish, but cautious undertones and growth concerns came to the fore in the press conference. At next week’s monetary policy decisions, the FOMC and BoE are set to show similar levels of caution to the ECB, although both central banks are still expected to hike interest rates by 25bps.
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Simon Harvey, Head of FX Analysis
Ima Sammani, FX Market Analyst
Jay Zhao-Murray, FX Market Analyst