Sterling was unable to make any headway yesterday with a more cautious tone surrounding risk appetite with a key element holding back potential currency support as risk aversion amidst the ongoing war in Ukraine continues to look like a prolonged affair.
Bank of England (BoE) Chief Economist Pill looked at underlying questions surrounding monetary policy and doubted that quantitative easing would be a realistic policy option if inflation was too high, but there were no comments on current monetary policy with limited moves in the currency.
It is going to be a quiet day data-wise, but risk sentiment will continue to be the main driver of price action.
Federal Reserve Officials Signal Larger Rate Hikes
A quiet economic calendar on Thursday saw the greenback maintain its recently elevated levels and further extended gains later in the session following hawkish comments from St Louis Federal Reserve (Fed) President James Bullard. Federal Open Market Committee (FOMC) member Bullard said on Thursday that even with financial market tightening, the Fed remains behind the curve in its fight against inflation, whilst indicating he would like to see the Federal Funds rate hit 3.5% in the second half of 2022. He added that he would lend support to a 50-bps rate hike at the May meeting, though he is watching the data. Following the comments, market reaction saw the Dollar index continue to position below the 100.0 level.
The only significant data release on Thursday data saw weekly initial jobless claims fall in further signs of a tight jobs market and robust labour demand.
Today’s economic data calendar is light with nothing of note across the US, with risk sentiment is expected to dictate levels in the short term.
French Election and Next Week’s ECB Could Change the Tone of the Euro
The single currency remains under pressure as there are further concerns over a prolonged conflict in Ukraine as Russia continued to build up forces near the Eastern border in preparation for an onslaught on the Donbas. The Euro remains sensitive to developments in the war.
German industrial production increased slightly above market expectations, although there was a downward revision for January. Eurozone retail sales increased by 0.2% in February with a year-on-year increase of 5.0% from 8.4% previously. The data had little market impact, but Euro developments remained important.
There was an element of caution ahead of Sunday’s French Presidential election with opinion polls indicating only a narrow lead for President Macron with his main rival far-right Le Pen closing the gap.
Next week we have European Central Bank (ECB) council meeting with the central bank under pressure to adopt a more hawkish policy stance to counter the inflation threat.
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