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EU Attention turns to the ECB meeting

The Euro rallied against several major pairs on Wednesday following reports of a slightly more conciliatory tone from Ukrainian and Russian officials regarding the possibility of a diplomatic solution ahead of Thursday’s negotiations in Turkey. Recent price action has been dictated by the geopolitical landscape, however, the upbeat tone boosted risk appetite across markets, which also saw a rebound in German 10-year Bund yields. Meanwhile, the Euro surged against the US Dollar, a move further triggered by reports that EU countries were discussing a bond issuance to finance energy price increases and defence spending.

Looking ahead to today, the European Central Bank (ECB) interest rate meeting is the standout event on the economic calendar. Speculation of a potential interest rate hike by the ECB, possibly sooner than expected, may lend some short-term support to the Euro. Investors will look closely for any suggestions around the pace of tapering and forecasts over the rate of economic recovery. Also set for release is the final German CPI release.

US Safe Haven Demand Eases

The US Dollar eased from recent highs yesterday on expectations that a diplomatic solution can be reached between Russia and Ukraine, with foreign ministers from both countries set to meet in Turkey today. It was reported on Wednesday that Ukraine President’s Chief of Staff, Zhovkva commented that Ukraine is willing to discuss Russia’s demands of neutrality, adding that there must be guarantees of security. The positive shift in sentiment saw the US Dollar index fell by around 1% below its recent two hear highs, ending the session close to 98.0. Reflecting the improved market sentiment, the 10-year US Treasury bond yields rose by 4%, and the S&P gained by over 2%.

On the economic calendar today, all eyes will turn to key Consumer Price Index (CPI) inflation data for February ahead of the Federal Open Market Committee (FOMC) March meeting. Today’s updated inflation report is expected to show the headline inflation rate hitting 7.9% in February, up from 7.5% in January and will provide fresh clues as to the timing and pace of hikes, expected to begin this month.

UK Consumer Confidence Slides

Yesterday, Sterling made gains against the US Dollar but lost ground against the single currency following the large move in EURUSD during the day. It was quiet in terms of economic data, but the latest YouGov survey recorded a significant dip in UK consumer confidence for February. Whilst this may not be a big surprise given the inflationary environment, the removal of the energy price cap and the rise in National Insurance are all due. The report stated concerns over household finances, although there was increased optimism over job security.

The Royal Institute of Chartered Surveyors (RICS) housing data remained strong with 79% of surveyors reporting an increase in prices compared with 74% previously and above consensus forecasts of 72%, but there were expectations that the housing sector would slow over the next few months. 

It is a quiet day in terms of economic data for the UK but there are plenty of events and data elsewhere that could drive price action.

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