The pound remains pressurised by the dollar but has made gains against the euro amid a risk sensitive market. Trader’s confidence has taken blow on mounting tensions over global economic growth, in light of fresh western sanctions against Russia over its atrocities in Ukraine. Additionally, the greenback found support from the potential impact of aggressive monetary policy tightening by the Federal Reserve Bank whose minutes from their last meeting will be released this evening. Yesterday, sterling found some support when data released showed that British services companies enjoyed stronger growth last month than was first estimated despite rampant inflation pressures. The S&P Global/CIPS services PMI showed business activity rising at its fastest rate in 10 months at 62.6 in March from 60.5 in February. No major economic data releases today so the pound’s movements will likely be dictated by risk flows.
The euro is trading at its lowest level in nearly a month against the dollar after the European Commission proposed new sanctions against Russia on Tuesday, including a ban on buying Russian coal and on Russian ships entering European ports. Head of the EU Commission Ursula von der Leyen also said they were working on banning oil imports too. The single currency suffers from an escalation in the Ukraine conflict as the union imports 40% of its energy from Russia and banning imports will hurt economic growth within the bloc. Also undermining the euro this morning was the release of German Factory orders, which declined more than expected in February, suggesting that the recovery in manufacturing sector of Europe’s powerhouse is in the doldrums. Orders for industrial goods fell 2.2% on the month, when economists had been expecting a 0.2% fall. Chief economist Philip Lane will speak before an economic forum in Greece later today.
The dollar index, which measures the greenback against a basket of six currency peers, edged up to its highest in nearly 2 years (May 2020) in early trading. The dollar’s gains have been fuelled by hawkish comments from Federal Reserve officials as well as safe haven flows. Federal Vice Chairwoman Lael Brainard said on Tuesday evening that the Fed was prepared to take “stronger action” if inflation expectations were to require it. Brainard further noted that the central bank will move monetary policy to a more neutral position later this year via a combination of balance sheet reduction and rate hikes. Similarly, San Francisco President Mary Daly reiterated that they could start balance sheet reduction as early as May. Traders will look forward in anticipation of the release of the minutes from the Fed’s March meeting later this evening.
11:45 EUR ECB’s Lane speech
19:00 USD FOMC minutes