Daily Brief

Spring Cleaning

3 minute read

Markets end the week in a positive mood

There was a fairly positive end to proceedings last week. Both the Fed and BoE delivered 25bps rate hikes, and the market took those bits of ‘news’ in its stride. Persistent talk of progress in the peace talks for Ukraine has also helped to calm volatility, referenced by the corrective move in the Vix too. Markets use the Vix as a fear barometer during times of stress. Gold’s decline from above $2,000 gives further evidence, should you need it. Worries over supply constraints have ensured that the spot price of Oil remains elevated above $100 pb, but here too, there has been a big correction from the absolute peak. Baby steps.


Sunak to cut fuel duty?

The major currency pairs also reflected that pick-up in risk appetite through last week, with the real highlight being the greenback retreating from its recent peak. GBP/USD therefore finished last week closer to 1.3200 than 1.3000. However, this week is littered with key data and events for the UK. The Chancellor’s Spring Budget is the standout on Wednesday. Rishi has already suggested that he will cut taxes on fuel – so I won’t pretend that I have a magic ball, and knew that this would be the case. Look into my eyes. He didn’t go as far as to comment on what he is planning to do with income tax or national insurance increases, just yet.  However, with the latest UK Inflation data also out on the same day, those soaring energy costs will give a sombre reminder of the huge increase to the cost of living, should the public need a reminder of it.


EUR bouncebackability

EUR/USD finished last week back over 1.1000. That move was driven primarily by the pick-up in risk sentiment, and as I said before, the market has priced in the extra risk due to the war in Ukraine through the EUR, so it is completely understandable that as the mood lightens, so the single currency will bounce back. The EUR fared well against currencies across the board, with GBP/EUR slipping back below 1.2000 last week too. This Thursday’s PMI readings for the Euro-Area will give an early glimpse into how the region is faring since the beginning of the conflict. In the meantime, expect the single currency to continue to play headline tennis over Ukraine.


After the Fed

Every Fed meeting is now ‘live’ then going forward, according to Fed Chair, Jay Powell last week. We could even see as many as six hikes in the U.S before year end. Some are questioning whether the Fed will get those hikes through before there are any negative surprises to the economy – both U.S and global, to cause a re-think. Time will tell on that one.  In the meantime, the dollar fell victim to profit-taking and positive market sentiment, and it is likely to continue to take its lead from the later in the short-run, as this week is fairly sparse for keynote U.S economic data releases to rock the boat.


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