Risk sentiment remains a key driver for currency markets

Risk continues to be the main driver for currency markets. Confidence in the global outlook has weakened significantly, especially with energy prices increasing considerably. There are widespread fears over a disruption to trade and Europe is inevitably seen as most vulnerable to this. Further moves from NATO and potential Chinese peace-making attempts will be an important focus throughout the coming weeks with scope for a strong rebound in risk if there is a move to secure a ceasefire in Ukraine. In contrast, fears of an escalation would risk a further slide in risk assets with high volatility set to continue.

USD

Evidence of this is the US dollar being up on its G10 counterparts throughout yesterday evening and this morning.

Federal Reserve Chairman Jerome Powell said yesterday that the central bank would begin carefully hiking interest rates in March, but was ready to move more aggressively if needed. The comments were widely in line with investor expectations.

EUR

The euro was near a twenty-one month low over worries that the Russian invasion of Ukraine will hurt Europe’s economy. Whilst commodity currencies were at multi-week highs as export prices surged. Europe consumer price index (CPI) also hit a record 5.8% year-on-year in February 2022, data released yesterday showed.

The European Central Bank (ECB) will release the minutes from its February meeting later today.

Key announcements

12.30 – ECB Monetary policy meeting minutes released
15.00 – US Federal Reserve Chair Jerome Powell testifies