Resurgent dollar bulls

Markets had a nervy end to the week, with the recent themes of risk aversion and higher commodity prices showing no signs of abating. For currencies, this nervousness played into the hands of those resurgent dollar bulls. Add another strong U.S jobs report into the melting pot, and the greenback finished the week very much top of the class. For once, the ADP and Nonfarm figures aligned. Before the war in Ukraine, this news of a stronger than expected labor report would have convinced markets that the Fed were likely to go on a rate-hike bender, but as we said last week, global growth is likely to be negatively impacted by the war, and this will give the Fed and friends some serious cause for caution.

Over the border to safety

The UN said over the weekend that over 1.5 million refugees have now fled Ukraine. The constant avalanche of companies severing ties and association with Russia and Russian entities is not slowing either. Both Visa and Mastercard suspended their respective Russian operations over the weekend, but whilst they may control over 90% of the global payments market between them, Russian banks downplayed the significance of the move. However, the slew of sanctions continues to impact every-day life for Russians, even if their suffering cannot be compared to that of the people of Ukraine in just now.

How low can you go, Euro?

With that strong greenback across the board, and the single currency faltering, EUR/USD is heading back to levels not witnessed since the beginning of Covid. A strong move under 1.1100 ensued on Friday afternoon, and the pace of this decline has really caught the eye. This week’s ECB meeting may offer only a temporary stay of execution for the relentless selling. The ECB have an unenviable task ahead of themselves, however. Caught between surging inflation (and higher to come), and impending weaker growth for the region, they look damned if they do move on rates, or damned if they don’t.

Sterling slides too…

GBP/USD succumbed to that feisty dollar on Friday too, with the pair also registering a sharp decline, if perhaps a slightly more digestible one to just under 1.3200. Indeed, with GBP/EUR now at 1.2100, the pound has been far more insulated, despite the UK economy likely to feel the pinch just as much as the rest, going forward.

What is happening today, and this week?

Slow start to the week today on the data front, with the latest German Retail Sales out earlier this morning. A 10.3% YoY gain was released after a flat, Covid-impacted print in December.

Beyond today, it is another big week ahead for keynote data, with the latest ECB meeting (see above), as well as Euro-area GDP, U.S Inflation, and the latest Canadian jobs. In the UK, we are due the latest GDP print, as well as Industrial and Manufacturing Production.