GBP

Sterling has made moderate gains against a broadly weaker euro but continues to test recent lows against the dollar. The pound has been undermined against the dollar as the market views that the Bank of England will not be as aggressive in tightening monetary policy as its American counterpart. Bank of England Chief economist Huw Pill, speaking at the central banks conference on sovereign capital markets, gave little clues on his views on future interest rates but did say quantitative easing may be the wrong tool to tackle any future episodes of bond market turmoil, given how high inflation is now and threatening to go higher still.

EUR

The euro continues lose ground against the dollar, hurt by diverging central bank monetary policy. While the Federal Reserve Bank members have made their intentions clear and told the market to expect an aggressive rate hike cycle this year, the minutes from the European central bank’s last meeting released yesterday showed that policymakers disagreed on how to respond to runaway inflation and economic uncertainty caused by the Ukraine conflict. The single currency could be further undermined by uncertainty around the outcome of the French election, as far-right candidate Marine Le Pen gains in the polls threatening the re-election hopes of incumbent President Macron. Le Pen’s popularity has surged in recent weeks, and she is expected to face off in the second round against Macron, whose re-election was thought to be a foregone conclusion a few weeks ago, however recent polls have revealed that Macron’s lead is within the margin of error.

USD

The dollar extended its recent upward move on Friday, reaching a new two-year peak against a basket of major currencies and a one-month high versus the euro, amid negative market sentiment and hawkish remarks from central bank policymakers. Yesterday, in a speech given at the University of Missouri, the St Louis Fed President said that even with financial market tightening, the Fed remains behind the curve, telling the audience that a rate of 3.5% is needed to fight inflation. Bullard added that it was important that the Fed now “ratifies” the guidance it has given with interest rates at upcoming meetings.

Economic Calendar

No major releases today