Sterling has opened the week unchanged against the dollar and slightly stronger against a weak euro. The pound was the second worse performing G10 currency in March, only behind the Japanese Yen, as economists believe that weaker growth in the UK is likely to compel the Bank of England to act cautiously. A series of speeches today from Bank of England officials, including Governor Andrew Bailey, will offer some insight into the policymaker’s thinking, with traders so-far remaining cautious. In a speech last week, Bailey was vague when he said the situation remains very volatile when asked about the May rate decision, meaning today’s speech will be closely scrutinised for market direction. With inflation now posting at 6.2%, the market is struggling to price in more than 1 additional rate hike by the end of the year. Elsewhere, Boris Johnson has spoken out in favour of Ukraine after the “despicable attacks against innocent civilians in Bucha”, referencing this weekend’s reports of Ukrainian civilian executions by Russian soldiers. He continued that the UK will do “everything in its power to starve Putin’s war machine… by stepping up sanctions and military support”.


The euro dropped to week-long lows this morning against sterling and the dollar, after Ukraine accused Russian forces of war crimes near Kyiv. Following these reports, German Defence Minister Christine Lambrecht said on Sunday that the West would agree to impose more sanctions on Russia in the coming days, hinting the European Union should talk about ending Russian gas imports. The euro has dropped on this news as an embargo on energy imports would likely come with price pain since Russia supplies around 40% of Europe’s gas needs. Following this, Russia was quick to deny that its forces were responsible for the deaths of civilians in the town of Bucha and said Ukraine had staged a performance for the Western media. Although, German Chancellor Olaf Scholz seemed unconvinced when he said in a statement to reporters that “Putin and his supporters will feel the consequences”. This morning’s release of German Trade Balance showed a positive shift showed a surplus of €11.5bn versus €9.6bn expected, but this did little to stir the market’s focus on Russia-Ukraine headlines.


With tensions remaining high in Ukraine, the dollar has held onto its gains of last week with a risk-aware sentiment persisting in the markets. Also adding to the dollar’s cause was a rise in US Treasury yields as expectations of rapid fire US interest rates were stoked by a strong jobs report on Friday. The Nonfarm Payroll release showed 431,000 jobs created in March, below the forecast for a 490,000 rise, but a hefty 72,000 upwards revision of the February figures to 750,000 from 678,000, more than made up for the 59,000 miss on the March headline expected number. The US unemployment rate also posted a 2-year low of 3.6% in March from 3.8% in February, larger than the expected drop to 3.7%. As a result, Fed funds futures have priced a near 80% chance that the central bank could raise interest rates by 50 basis points next month. Looking ahead, US Factory Orders will be released this afternoon – the only major data offering in the docket today.

Economic Calendar

10:05 GBP Bank of England’s Governor Bailey speech
15:00 USD Factory Orders (MoM)(Feb)
15:00 GBP Bank of England’s Cunliffe speech