There were no significant UK data releases on Thursday with risk trends having an important impact. Equity markets lost ground again during the day which limited potential support for the UK currency and overall Sterling confidence tended to deteriorate on global and domestic economic grounds. From a longer-term perspective, there were further concerns surrounding the UK economic outlook, especially with further warnings over the cost of living crisis.
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Talks between the Ukraine and Russian foreign ministers made no headway on Thursday with aggressive rhetoric from Russia’s Lavrov hampering risk appetite. The ECB held interest rates at 0.0% following the latest council meeting. As planned, the central bank will end emergency bond purchases this month, but there was a change in the planned APP bond purchases with a faster taper for the second quarter. Third-quarter purchases will depend on market conditions at the time while the bank is then planning to stop purchases if the data indicates that the medium-term inflation outlook will not weaken. This was a significant shift and more hawkish stance compared with the previous meeting. The bank reiterated that any adjustments in interest rates would take place sometime after the ending of bond purchases. The Euro spiked higher after the decision with the statement more hawkish than expected and markets brought forward their expected timing of a rate increase. Markets priced in 43 basis points of tightening by the end of 2022 from 30 basis points ahead of the meeting despite the ECB insistence on a flexible stance.
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The US Dollar (USD) made significant gains against many of its rivals over last week. A retreat in global risk appetite saw a sustained drive to safe-haven currencies in the midst of the Russia-Ukraine conflict.Markets remained risk-averse as Western nations continued to step up economic sanctions against Russia. Multiple nations including the US, UK, and EU banned multiple Russian banks from the SWIFT payment system on Saturday. Concerns that the US could impose sanctions on Russian oil production also likely helped push USD higher.A notably hawkish turn from Fed Chair Jerome Powell helped the US Dollar to make some gains on Thursday and Friday. Powell stated that he was ‘inclined to propose and support’ a rate hike at the Fed’s March meeting. Powell’s comments led to increased bets on USD and saw the currency rise higher.
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16:15 President Biden speech