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US Risk Aversion and Safe-Havens Flows Continue to Dominate

The US Dollar remained elevated on Monday, continuing its recent advance. The US Dollar index hovered above 99.00 which is the highest level since May 2020 as safe-haven flows continue to dominate financial markets and as investors continue to assess geopolitically and economically due to the escalating conflict in Ukraine. The latest developments show no signs of de-escalation and as commodity prices continue to surge, volatility increases across global equity markets.

The surge in the commodity process has led to heightened concerns over inflation pressures and growth forecasts, the shift in prices has most notably seen Brent Crude oil hovering close to $127 per barrel. The added pressures have led investors to reassess central bank monetary policy forecasts. The Federal Reserve (Fed) is expected to raise US interest rates by 25-basis points at their March meeting. It had been suggested by senior Fed officials over the past few weeks that a 50-basis point hike would be announced, however, Powell’s testimony last week signalled a steadier pace of hikes beginning in March.

It’s a quiet day of economic releases today as the market looks ahead to Thursday’s key release of inflation data for fresh clues over policymakers’ March rate decision.

Sterling Slides as Consumer Spending Disappoints

Yesterday we saw the pressure remain on Sterling against the US Dollar as risk conditions remain fragile. There are fresh concerns over the UK economic outlook, especially with further damage from the surge in energy and food prices in an already high inflationary environment.

In terms of economic data, Halifax reported a 0.8% increase in house prices for February whilst a year-on-year increase of 10.8% from 9.7%. Overnight the British Retail Consortium data reported a like-for-like retail sales increase of 2.7% in the year to February and below expectations of 4.7%. This may be a concern as consumer confidence may be sliding with the unease over the impact of surging energy prices on discretionary spending.

It is a quiet day today with Sterling price action likely to be dictated by risk trends.

EU Focus Turns to Q4 GDP

It was a quiet day of economic releases on Monday as risk aversion and safe-haven demand continued to dominate as the global slide in equities continues to impact currency markets. There were heightening concerns that the potential for fresh energy sanctions against Russia and the potential ban on imports from Russia may impact Eurozone countries, especially those who rely heavily on Russian gas including Germany and Italy.

It was reported that German factory orders increased 1.8% which was above consensus expectations of 1.0%. However, the positive factory order data was offset by the Sentix investor confidence index which saw the updated figures demonstrate a sharp fall to a 16-month low of -7.0 for March from 16.6 previously as the Ukraine conflict sapped confidence.

Looking ahead to today, investors will review the revised Eurozone Q4 2021 GDP release.

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