GBP

The pound gained modestly on Tuesday, bouncing from 4-month lows against the dollar, following an upbeat UK jobs report and rising anticipation ahead of Thursday’s Bank of England rate decision. It is widely expected that the BOE will raise rates by 25 basis points on Thursday, a third possible hike in a row, which has offered support to the pound. However, any gains have been capped as The Federal Reserve, who meet this evening, are also expected to raise rates by 0.25%. Also limiting sterling’s gains are the latest Covid reports out of China and for the UK. Chinese cases have hit a 2-year high, just as cases here in the UK have spiked in the last 7 days with 444,201 cases reported – a 48.1% increase on last week.

EUR

The euro was subject to slight gains on Tuesday as once again its movements were influenced by fluctuating commodity prices. The common currency benefitted as Brent Crude futures dropped as much as 8% after concerns over supply were eased by ongoing Ukraine ceasefire talks, and rising covid cases in China suggested a slowing of demand for oil. Peace talks with Russia continued on Tuesday – the first time a round of talks have ran into a second day – as Ukraine President Volodymyr Zelenskyy said that he was willing to negotiate security guarantees that stop short of its long-term objective of the NATO alliance membership, which Moscow opposes. Meanwhile, Germany’s ZEW expressed their take on the economy as they said that sanctions against Russia are significantly dampening the economic outlook for Germany with a recession becoming more and more likely. This followed the release of ZEW headline numbers for March which showed that the Economic Sentiment Index deteriorated sharply, coming in at -39.3 from 54.3 previous.

USD

The dollar traded sideways yesterday as markets await statements on Wednesday from the Federal Reserve following their interest rate decision at 6pm tonight. Money markets are fully priced for a first interest rate hike in 2 years, with the Fed expected to raise by 25 basis points. With the hike largely expected, it is likely that the path the central bank lays out for the rest of the year is going to offer more direction than the hike itself. Their decision is complicated by the impact of the Ukraine war and the need to tackle 40-year high inflation without increasing the unemployment rate. Despite what is expected to be a positive meeting for the Fed, any positive moves have been supressed by a mild risk-on mood with Ukrainian peace talks ongoing. Looking ahead to today’s data, February Retail Sales and Import Price Index figures could offer some volatility ahead of The Fed’s main event tonight.

Economic Calendar

12:30pm USD Import Price Index
12:30pm USD Retail Sales (MoM) (Feb)
14:00pm EUR President Zelenskyy Speech
15:45pm USD President Biden Speech
18:00pm USD Fed Interest Rate Decision
18:00pm USD Fed FOMC Economic Projections