GBP

After testing the recent 20-month lows against the dollar yesterday, sterling has found some support and has begun the day around the same level as Tuesday’s opening. Against the euro, it’s a similar story for the pound as it remains largely unchanged from yesterday. The International Monetary Fund (IMF) warned yesterday that elevated inflation pressures and the war in Ukraine will slam the brakes on the UK’s economic recovery from the pandemic in the years to come. The body slashed its growth forecasts as it cautioned that inflation is expected to remain higher for much longer than previously expected, hampering consumer spending, the main driver of the economy. Britain’s gross domestic product is now expected to grow by 3.7% this year, down from the 4.7% growth predicted by the IMF at the start of the year, before the Ukraine Conflict. The forecasts make the UK one of the best economic performers for this year, but the fund expects growth to stutter to 1.2% in 2023, the slowest of any “advanced” economy.

EUR

The euro has gained some traction against the dollar in early trading, helped by the German Producer Price Index which came in at 4.9%, much better than the 2.6% expected and well above last month’s 1.4%. Traders will now look ahead to the release of industrial production for the eurozone as well as the bloc’s trade balance later today. The single currency has also been helped by polls released yesterday evening which showed incumbent French President Macron’s lead widening over far-right candidate Marine Le Pen in Sunday’s Presidential runoff. An IPSOS poll saw Macron winning 56.5% of the vote, up half a point from Friday and 3.5 points from April 8th, two days before the first round. Polls by Opinionway and IFOP also showed Marcon with his highest share of voting intensions since the April 10th vote.

USD

The dollar climbed to a new two-decade high against the Japanese Yen this morning, buoyed by more Federal Reserve Bank officials pushing for aggressive policy tightening, while the Bank of Japan intervened in the bond market again to defend its ultra-low-rate policy. The dollar index, which measures the greenback against six major peers including the yen, edged slightly higher at 101.01, nearly matching Tuesday’s high of 101.03, a level not seen for over two years at the height of the covid pandemic. Meanwhile the benchmark 10-year treasury bond yield climbed to is strongest level since late 2018. The dollar’s support came after Minneapolis Fed President Nell Kashkari, considered among the more “dovish” policymakers, said that if global supply chain disruptions persist, officials will need to take even more aggressive action to bring down inflation. His comments came after Chicago Fed President Charles Evans said he felt “comfortable” with a round of rate hikes this year that includes two 50 basis point increases, marking a change from last month when Evans did not see a need for 50bps rises this year. San Francisco Fed President Mary Daly is due to speak later today.

Economic Calendar

10:00 EUR Industrial Production
10:00 EUR Trade Balance (Feb)
16:30 USD Fed Mary Daly Speech