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Risk back on the table

As we enter the fourth full week since Russia invaded Ukraine, with seemingly little progress made through diplomatic channels, markets look to have shifted decisively toward risk-on conditions. Asset prices moved higher last week, with the benchmark S&P 500 hitting its largest weekly gain for the year to date and easily surpassing its level at the point of invasion. Meanwhile, US Treasury yields have risen to significant new highs on the back of market expectations of Federal Reserve interest rate hikes, with markets pricing in 75bps of hikes over the coming two meetings. It appears that while the risk of stagflation remains and is arguably getting worse, markets are shrugging off fears of a full-blown recession.

Turning to the warwhich, as per Bloomberg, has overtaken inflation as the biggest investor fearUkraine has rejected Russia’s ultimatum for the surrender of Mariupol overnight, with the rhetoric out of the Kremlin subdued. Russia’s claims that ‘no substantial movement’ had been seen between the two sides means the fighting will act as a backdrop to a significant week in international diplomacy. US President Joe Biden will hold a call with European leaders today, but is also set to travel to Brussels later this week for face-to-face talks on a coordinated response. Still, with Russia launching ‘hypersonic’ missiles over the weekend, which are capable of both outwitting western defence systems and carrying nuclear warheads, markets are likely to be very wary of further escalations.

Bottom line: For us, uncertainty with regards to the Russia-Ukraine war remains, and with it, the risk of outsized currency movements. The US Dollar Index remains in its new post-invasion elevated range, with most buying into the Federal Reserve’s rhetoric of faster monetary policy tightening. Yet, Bloomberg’s freshly released FX fair-value model indicates that the Greenback could be around 7.6% overvalued. If the fog of war subsides in the coming weeks, the prospect of a 1.40 level on GBP/USD comes seriously back into play—however, that’s a BIG if.

The week ahead


Sterling recovered from its 16-month low against the US Dollar last week as both the Federal Reserve and Bank of England announced tighter monetary policy measures. The BoE hiked interest rates by 25 basis points but adopted a more cautious tone surrounding future policy tightening. Concerns regarding the Russia-Ukraine conflict and rising energy bills, which look set to dent consumer spending power, point to a slowdown in growth in the coming months. UK Chancellor Rishi Sunak will deliver the Spring Statement this Wednesday and is under pressure to provide more support to UK households. Public finances are expected to be healthier than first thought, with around £20bn of borrowing headroom available to provide support to those especially vulnerable, according to analysts at Goldman Sachs.

  • UK Consumer Price Index and Core CPI y/y for February will be published on Wednesday. Analysts are expecting 6.0% and 5.0% respective readings.
  • Bank of England Governor Andrew Bailey will be speaking at the Bank for International Settlements (BIS) Innovation Summit on Wednesday at 12:00PM.
  • Flash Manufacturing and Services Purchasing Managers’ Indices are forecast to read 57.0 and 58.0 in March, respectively.
  • Retail Sales m/m data for February will be released this Friday with an expected print of 0.6%, down from 1.9% in January.



EUR/USD climbed just over 1.0% last week following a softening in hawkish tone by the Federal Reserve and Bank of England. European Central Bank President Christine Lagarde reassured markets this morning that stagflation risks in the Euro Area are limited, even if the Russia-Ukraine conflict worsens and commodity price pressures are exacerbated. Germany has reportedly sourced alternative natural gas supplies from Qatar as other EU countries attempt to sever their connections with Russia; current daily energy payments to Russia from the EU are estimated at €800m. European markets have opened modestly higher this morning as traders continue to assess the direction of the Russia-Ukraine conflict. The Euro Stoxx 600 has gained 15 basis points while Germany’s DAX is up around 0.2%.   

  • European Central Bank President Christine Lagarde will be speaking at the BIS Innovation Summit tomorrow at 1:15PM.
  • The French flash Manufacturing and Services PMIs will be published on Thursday, with expectations set for a print of 55.1 and 55.0, respectively.
  • German flash Manufacturing and Services PMIs are also due on Thursday, with projected readings of 55.9 and 54.3.
  • On Friday, the German ifo Business Climate is expected to read 94.2, down from 98.9 in February.  



The US Dollar Index closed 0.75% lower last week as risk assets rallied despite continued uncertainty in Europe and a Federal Reserve interest rate hike. The S&P 500 posted its best weekly return since November 2020, gaining 6.20% and shaking off near-term volatility. US optimism around potential peace talks in Ukraine has waned in recent days, with US President Joe Biden’s handling of the situation coming under fire. Biden’s rejection of implementing a no-fly zone and providing fighter jets to Ukraine has been met with disapproval by Congress, with White House officials critiquing the speed of response. There are a number of Federal Open Market Committee members speaking this week; markets will be watching closely for any movement on plans for the reduction of the central bank’s $9tn balance sheet.   

  • Federal Reserve Chairman Jerome Powell is due to speak today at 4:00PM at the National Association for Business Economics Annual Economic Policy Conference and the BIS Innovation Summit on Wednesday at 12:00PM.
  • Durable and Core Durable Goods Orders m/m for February are due for release on Thursday, with analysts expecting respective prints of -0.5% and 0.5%.
  • Flash Manufacturing and Services PMIs will also be released on Thursday. Forecasts suggest 56.6 and 56.0 readings, respectfully.
  • Federal Open Market Committee members James Bullard, Christopher Waller, and John Williams are scheduled to speak throughout the week.


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