Overview

Russia-Ukraine uncertainty continues to direct a lot of market movement. The Pound has fallen against some other currency majors as safe-havens note an increase in demand and commodity currencies gain on the back of soaring commodity prices. 

GBP

BoE rate hike expected

Last week, the Pound continued to soften, hitting fresh year-to-date lows against the US Dollar while also falling against the Euro. In the week ahead, highly influential UK labour market data will be released, and the Bank of England will announce its latest interest rate decision; markets are pricing in a rise from 0.50% to 0.75%. Growth concerns, a fallout from the Russian invasion of Ukraine, are continuing to hamper the monetary tightening outlook, with some analysts forecasting UK inflation to reach 8.00% on the year in April, when the 54.00% rise in the energy price gap comes into play. In the coming months, any comments from UK central bankers could cause movement in the Pound as investors try to ascertain whether policymakers will deviate from their current tightening path.

EUR

A hawkish twist

Despite falling in recent weeks as investors favoured safe-haven assets, the Euro to US Dollar exchange rate closed 0.50% stronger last week following the European Central Bank's more hawkish monetary policy stance. Given this, Sterling also softened by around 1.13% against the Euro, touching June 2016 highs when the Brexit referendum was taking place. The ECB said it was planning to end its bond-buying programme in the third quarter of the year, as increasing inflation outweighed the economic growth risks posed by the Russia-Ukraine conflict. Markets have interpreted this as a sign that interest rate hikes will also be considered sooner than expected; however, the ECB said that any adjustments to interest rates will be 'gradual' and could take 'some time' following the end of the bond purchases. In terms of data, the week ahead will see the release of Eurozone inflation and economic sentiment stats. Meanwhile, European Central Bank President Christine Lagarde will also speak.

USD

GBP/USD hits lowest level since November 2020

Against a host of currency majors, the US Dollar managed to climb further last week as geopolitical risks continued to encourage a flight to safety. The Pound to US Dollar exchange rate closed 1.61% lower, reaching its lowest level since November 2020, when Brexit negotiations took place. One of the main focus points in the coming sessions will be the Federal Reserve's interest rate decision and the Federal Open Market Committee's Economic Projections. Markets are factoring in an interest rate hike from 0.25% to 0.50%. Markets have priced in six interest rate hikes this year, a total increase of 165 basis points. However, stagflation—a term that characterises slower economic growth, higher unemployment and rising prices—remains a concern for central bankers and could impact the way policymakers vote. This concern could be further compounded by the March consumer sentiment reading, which showed confidence hit an 11-year low.

AUD and NZD

Exports offering some supply disruption support

The Pound closed 0.83% lower against the New Zealand Dollar last week, while also closing 0.39% softer against the Australian Dollar. Last week, the Reserve Bank of Australia said it was 'plausible' that interest rates would rise this year. Regarding Russia and Ukraine and the supply disruptions, Governor Philip Lowe said that the Australian economy was in a good position to ride out the supply situation because of the country's exports which are increasing in price. These include oil, wheat, and other raw materials; Lowe said: 'This means that our terms of trade will rise over the months ahead, which will provide a boost to our national income', but warned that the increase in oil prices would impact household budgets and ramp-up costs for businesses. In the week ahead, New Zealand services data will be out, as well as growth stats. Meanwhile, Australian ecostats will include labour market numbers and Westpac's Leading Index, which measures economic activity. The Reserve Bank of Australia will also release its latest meeting minutes. 

CAD

Unemployment below pre-pandemic levels

The Pound closed 1.37% lower versus the Canadian Dollar last week, and the GBP/CAD exchange rate reached its lowest level since March 2020, when the pandemic began. Last week, labour market data showed Canada added 337K jobs in February, and unemployment dropped below pre-pandemic levels to 5.7%, where it was in February 2020. Canadian inflation data will be released in the week ahead, which is expected to rise, while retail numbers and housing price stats will also be out.