GBP

On a day void of any significant Sterling data, the British currency fell to its lowest level against the euro since December 2021. Investors bought the euro after hopes of a Russian de-escalation in Ukraine. The optimism for a ceasefire in Ukraine stems from news that Russia would look to withdraw troops from the regions around Kyiv, but also, Ukraine President Zelenskyi announced that the talks had given “positive signals”.

However, many remain cautious that investor optimism is misplaced. Russian Defence Minister Sergey Shoigu seemingly refuted claims of a de-escalation saying the withdrawal of troops was merely an indication that the first stage of the attack on Ukraine was complete.

Earlier in the week Bank of England Governor Bailey commented that only modest rate hikes may be required for the remainder of 2022, contradicting forecasts at the start of the year which saw rate hike expectations to increase to 2% by year end. This has also weighed on Sterling.

EUR

The euro rallied to fresh highs against both the pound and the dollar yesterday benefitting from Ukraine-Russia optimism, but also, increased expectations that the European Central Bank will be forced to hike interest rates this year.

According to preliminary data released on Wednesday, German inflation rose to its highest level for over forty years to 7.3%, up from 5.1% in February. Whilst in Spain, inflation soared to 9.8% from 7.6% previously as an increase in energy prices took its toll on European states. ECB President Christine Lagarde attempted to downplay the recent spike in EU inflation. Lagarde acknowledged the inflation situation as fluid, but stated food and energy prices were expected to stabilise. Markets currently anticipate the ECB ultra accommodative bond buying scheme to end in the summer with the first rate hike from the ECB in ten years to follow.

Key announcements

09:00 – EUR – EU unemployment data
09:00 – EUR – ECB Board Executive Philip Lane’s speech