GBP

Sterling has continued its recent slump, hitting a new 22-month low against the dollar in early trading. The pound has been hurt by broad risk aversion sentiment which has led to unabated greenback demand and a resurfacing of Brexit headlines. Deputy Prime Minister Dominic Raab said on Sunday that the political stability of Northern Ireland was in peril until problems with the protocol governing post-Brexit trade between the province and the rest of the UK were fixed. In a defining moment for Northern Ireland, Irish Nationalist party Sinn Fein won the most seats in the devolved assembly for the first time on Thursday as the Democratic Unionist party saw its support undermined by its role in post-Brexit talks between London and Brussels. Raab declined to say if a move to unilaterally change the protocol would be included in PM Johnson’s legislative agenda that will be announced on Tuesday.

EUR

The euro has continued to hold a crucial support level against the dollar for now, but the greenback remains in demand from increased safe-haven sentiment fuelled by global growth concerns amid Chinese covid lockdowns. The single currency has found moderate demand this morning after comments from ECB governing council member Olli Rehn that the central bank would have to raise its key interest rate as soon as July, as the bloc battles soaring inflation. The Finnish central bank chief, interviewed by an Austrian Welt daily newspaper, said it was necessary to raise interest in the third quarter to stop inflation expectations from being entrenched. Rehn’s comments followed those by French central bank head on Friday who said it is “reasonable to raise interest rates into positive territory by the end of the year”.

USD

The dollar hit a two-decade high on Monday as traders searched for safety and yield in the face of growing concerns over slowing global growth and rising interest rates. The war in Ukraine, tighter lockdowns in Beijing and Shanghai and the almost certainty of an aggressive rate hike cycle by the Federal Reserve Bank have fuelled the greenback’s recent rally. The dollar index is up nearly 9% this year and hit its highest level since 2002 earlier today. China’s two biggest cities tightened Covid-19 curbs on their residents on Monday adding to fears of reduced factory production which in turn could trigger disrupted supply chains issues. Markets are also fearing that Russian President Vladmir Putin could use today’s “victory day” celebrations to announce that Russia is at war with the Ukraine and call up reservists to the army. Putin has so far characterised Russia’s actions in Ukraine as a “special military operation”, not a war, or an invasion.

Economic Calendar

No major releases today