GBP

Sterling traded at its highest level this year and not far from highs last seen post Brexit referendum in 2016 against a broadly weaker euro overnight . However, against its other major currency pairings , the pound remains under pressure from a risk averse market due to the Russia -Ukraine conflict .
Bank of England policymaker Silvana Tenreyro warned on Wednesday that a surge in energy prices caused by the invasion will hurt British economic growth as well as raising short-term inflation pressures . In a similar vein , John Cunliffe , the central bank’s Deputy Governor told the Oxford union debating society yesterday evening that the crisis would add to risks in financial markets which have already been made volatile by a a shift to higher interest rates . Adding to the Bank of England’s inflation challenge , a survey released this morning by Confederation of British Industry said that a record number of business and professional service firms
expect to raise prices over the next three months as they face surging cost pressures . For now, financial markets still expect the BoE to raise rates from 0.5% to their pre-pandemic level of 0.75% on March 17, and as high as 1.5% by August.

EUR

The euro is pinned near a 21-month low against the dollar in early trading , undermined by persistent demand for the greenback . Data released yesterday , showed that Eurozone consumer prices rose by a record 5.08% in February underscoring fears that the war in Ukraine will drive up the cost of living and increasing pressures on the European Central bank over when to adjust monetary policy . ECB vice president Luis Guindos described the inflation figure a “negative surprise “ and predicted the conflict in Ukraine would raise prices further and hit growth, while Governing Council member Mario Centeno warned that the war could lead to a combination of low growth and high inflation, known as stagflation, in Europe. The ECB release their monetary policy meeting accounts later today .

USD
The dollar continued to gather strength against its rivals and the US dollar index reached its highest level since June 2020 yesterday evening . However , a report that Russian negotiators were looking to discuss a ceasefire lessened some demand for the greenback in early trading . Federal Reserve Bank Chairman on the first day of testimony before the House Financial Services Committee , confirmed that a 25 basis point rate hike in March would be appropriate . Powell called the Ukraine conflict a “game changer” that could have unpredictable consequences , but he said for now the Fed was proceeding largely as planned to raise the target overnight federal funds rate and reduce the size of its balance sheet in order to tame inflation that is currently the highest it has been since the 1980s . Powell’s testimony continues this afternoon .

Economic Calendar

12.30 EUR ECB Monetary Policy Meeting accounts
13.30 USD US Initial Jobless claims
15.00 USD Fed Chair Powell testimony