European markets eager for diplomatic solution with Russia

EUR

The safe passage of civilians from Ukraine’s eastern port city of Mariupol was “halted” on Sunday for a second consecutive day, after the agreed ceasefire was violated within hours of its planned implementation. Ukrainian President Volodymyr Zelenskyy warns that Russian forces could be planning an attack on the key port city of Odessa.

The continuation of areas being taken over by the Russian troops is now starting to take its toll on the Ukrainian army and this could just be a matter of time before Zelenskyy is reached. US Secretary of State Antony Blinken has revealed Ukraine’s government is prepared for the possibility of its president being killed in a Russian strike or assassination attempt.

Europe is particularly sensitive to further escalations due to its geographical proximity and trade with Russia. The euro is likely to remain bogged down until the tides turn toward a diplomatic solution, which should underpin USD strength in the interim.

USD

On Friday, we saw the release of Non Farm Payroll data showing 678k new jobs versus the expected 438k. The unemployment rate came in at 3.8% versus the 3.9% expected. And Average Hourly Earnings, a sign of wage inflation, reduced to 5.1% versus the expected 5.8%.

The strong data release failed to reignite bets for a 50 basis points rate hike at the March FOMC meeting. Federal Reserve Chair Jerome Powell, earlier in the week, said “he’s inclined to propose and support a 25 basis points rate hike”. Powell went on to reiterate the central bank’s view that inflation would begin to come down after peaking soon, but also acknowledged the current upside risks to inflation. The Fed’s goal is to stabilise prices without inducing a recession.