A significant pivot
Concerns for a more 'measured' approach
The Pound put in a mixed performance last week, rising around 1.0% versus the Euro and just slightly higher versus the US Dollar. Recent data has shown that while more people work from home, consumer spending in London and other major cities is sitting around 20% lower than before the pandemic. Transport numbers have also taken a hit, with London's underground usage at only 60%. In the week ahead, the UK will release a number of high-tier data points from the UK, including Employment Change, Unemployment Rate, and Inflation Rate data. Inflation will be in particular focus again as markets price in five interest rate hikes from the Bank of England in 2022. However, there have been some less encouraging comments from BoE Chief Economist Huw Pill, who's suggested a more measured approach—like-minded policymakers could potentially hinder the market's expectations for hikes later in the year. UK Average Earnings and Retail Sales numbers will also make their way onto the market. The situation between Russia and Ukraine will likely keep tensions high and create safe-haven currency demand.
Russia-Ukraine tensions cause risk-aversion
The Euro softened on the back of Russia-Ukraine tensions last week. Inflation numbers from the US also placed pressure on the popularity of the Euro, with the divergence between the European Central Bank and other banks becoming clearer. While markets have priced in the prospect of a rate hike by the ECB in the summer, three central bank representatives have downplayed the idea—giving no support to the Euro. European Central Bank President Christine Lagarde will make a speech today, before highly significant growth rate data tomorrow. Additionally, Economic Sentiment data will reach the market tomorrow for both the Eurozone and Germany, followed by Eurozone manufacturing, industrial, and consumer sentiment numbers.
Inflation at 40-year highs
US inflation reaching 40-year highs and rate-hike anticipation caused the US Dollar to rise by around 0.90% last week against a basket of other major currencies. This week, Retail Sales, Industrial Production, Building Permits, and Housing Starts data will all be out from the US. However, there are a fair amount of Federal Reserve representatives speaking throughout the week, as well as the latest Federal Open Market Committee meeting minutes coming to light on Wednesday. Debates over interest rates are likely to be a hot topic once again this week. Still, concerns over Russia and Ukraine will also likely shroud market activity, and potentially benefit the safe-haven US Dollar.
AUD and NZD
A significant pivot
Sterling fell 0.65% against the Aussie Dollar last week despite dovish comments from Philip Lowe, Governor of the Reserve Bank of Australia. He hinted at the possibility of an interest rate hike later this year, but with moderate wage growth and inflation, monetary policy is unlikely to shift in the first half of the year. Lowe's comments came as a significant pivot from the central bank's former stance of a rate hike occurring in 2024. Meanwhile, the Pound drifted 0.35% lower against the Kiwi last week amid wage growth concerns and the cost-of-living crisis. Kiwi strength was boosted as both short and longer-dated bond yields ticked higher across the board. In the week ahead, the Reserve Bank of Australia will release its meeting minutes from the February policy meeting, which will be in close focus for any details of an interest rate hike this year. Additionally, highly influential labour market stats will be out this week for Australia and could influence the AUD exchange rate. It's a very quiet week for New Zealand data, with only the low-priority Global Dairy Trade Price Index due for release.
Retreating on tensions
There was little change in GBP/CAD over the course of last week, with the drawdowns in the pair made back by the end of the week. Dovish comments from Bank of England Chief Economist Huw Pill dented Pound sentiment while the cost-of-living crisis remains a key talking point. The situation between Russia and Ukraine caused the Canadian Dollar to retreat against some other currencies last week, as riskier assets felt the impact of the tensions. One of the main influential events for the Canadian Dollar this week will likely be the inflation rate data due out on Wednesday. Canadian Retail Sales and New Housing Price Index stats will also be released.