Horrific headlines from the war in Ukraine filtered through to market sentiment at the start of last week, resulting in European currencies declining and crude oil prices rising further as market participants awaited fresh sanctions from the West in response. The developments around the sanctions weighed on the euro and made the single currency the worst performer in the G10 on the week, while in the EM space, European peripheries were hit hard as their domestic economies rely on Russian exports. While the news from Ukraine pushed investors towards safe havens like the US dollar, most of the broad USD strength this week stemmed from rising US yields after the Fed’s Lael Brainard and March’s FOMC meeting minutes confirmed a quicker reduction of the Fed’s balance sheet than in the previous cycle is to come, widening yield differentials between the US and eurozone. Next week’s European Central Bank meeting may change things as hot inflation prints from March put the ECB in a tight corner. On top of the ECB meeting, focus in Europe will be on the results of the first round of France’s 2022 Presidential election as citizens head to the polls on Sunday to choose their final two candidates for the second vote on April 24th. Additionally, markets will focus on rate decisions from the Bank of Canada, Reserve Bank of New Zealand, Central Bank of Turkey and the Hungarian National Bank.
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Simon Harvey, Head of FX Analysis
Ima Sammani, FX Market Analyst
Jay Zhao-Murray, FX Market Analyst