EUR supported by ease of geopolitical tensions while GBP and USD are facing domestic challenges.

GBP

UK inflation hit a new thirty year high yesterday, as consumers continued to feel price pressures in January. CPI rose 5.5% (YOY) in January, the highest reading since March 1992. This reading resulted in four consecutive months of rising CPI. The cost of living has risen at a rapid pace over the last year. Electricity rose by 19.2%, gas by 28.3% and fuel by almost 25% last month. With price pressures increasing all eyes move to the Bank of England and their monetary policy plan. We will almost certainly see a 25 basis points increase at their March meeting. After this it is hard to project, but inflation is forecast to pass 7% in the spring. The BoE’s monetary policy will need to be spot on to combat these price pressures. 

USD

Yesterday saw the release of the latest Federal Reserve minutes, although no groundbreaking revaluations were made. Fed officials laid out plans for reducing their balance sheet while also raising rates this year, both points we already knew. March seems to be the key month for the Fed. Another hike is almost certain and they confirmed we will see an end to their asset purchasing program. They also noted that inflation was spreading beyond Covid affected areas and out into the wider economy. With price pressures already being felt by the general consumer, much like the BoE, the Fed will be under close scrutiny in the coming months.

Looking ahead, the Russian-Ukraine situation continues to play out. Yesterday morning, Moscow claimed Russian soldiers were withdrawing from the border after completing training exercises. As a result safe-haven assets were sold off and riskier assets rose.

Later in the day these reports came into question when US officials claimed their satellites showed almost 7,000 further troops have arrived. A tale of he said she said, markets will remain cautious in response and we expect safe-haven assets to strengthen in these times.