Little movement in the markets


A fresh new week and still the recent trend of trading follows closely, with the rate being trapped in a very tight region, yet to make a breakthrough. It is however worth noting that, at the time of writing, the rate has teetered into a slight decline. This comes as markets are anticipating a scheduled speech from BOE’s Bailey, as it will provide further guidance to Pound buyers for the likely monetary policy action in May. BOE’s Bailey and his colleagues have already increased their interest rates to 0.75% to combat the inflation mess. The BOE has increased its interest rates by 25 basis points (bps) each time in its last three monetary policy meets and has been the first central bank worldwide that has raised its interest rates to post the Covid-19 pandemic. Also, the last week’s Consumer Price Index (CPI) print of 6.2% has advocated one more interest rate hike going forward. The CPI at 6.2% was much higher than the estimate of 5.9% and the previous print of 5.5%. Traders will also keep an eye on the developments in U.S. government bond markets as Treasury yields continue to move higher. Currently, the yield of 10-year Treasuries is trying to settle above the psychologically important 2.50% level. In case this attempt is successful, the yield of 10-year Treasuries will gain additional upside momentum, which will be bullish for the American currency.


The Sterling-Euro rate has also found itself trapped in a very narrow region these past few days of trading, bouncing in and out of a decline. The main player in this market is the ongoing conflict in Ukraine, with any developments regarding this matter usually sending a degree of turbulence to the rate. However, in recent days there have not been any more significant developments, with negotiations seemingly at a stand still with no end in sight. As time goes on the market may somewhat grow less sensitive to the war and give room for both currencies to breathe a little. Unfortunately, as the conflict continues, it is more apparent that many other economies will indirectly suffer from this after heavy sanctions have been placed onto Russia. Europe’s greater reliance on Russian oil and gas means the invasion of Ukraine could be more inflationary for the Euro area and a greater economic headwind, hence why the conflict has taken a larger toll on the single currency. The UK has a more limited direct exposure to Russia. Over 80% of the UK’s natural gas imports come from Norway, with only 15% from Russia. While the UK will still be affected by the energy price shock, it does not face the same magnitude as its European peers. Taking this into account, the Pound may continue to slightly outperform the Euro for the time being unless any significant developments occur that affect the sentiment towards Sterling.

Published by Frank Brightman (28/03/2022)

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