UK and US hike rates

GBP

BoE hikes rates 

The Pound recovered from a 16-month low versus the US Dollar last week, as both UK and US central banks tightened monetary policy. The Bank of England chose to hike interest rates last week to 0.75% as inflation continues to soar in the UK. BoE policymakers voted 8-1 to hike interest rates by 0.25% in what was the first time in over two decades policymakers have increased borrowing costs at three successive meetings. However, the BoE adopted a more cautious tone around future tightening. It's estimated that the Russian invasion of Ukraine could encourage inflation to reach around 10% this year and hinder economic growth. The BoE said that the conflict had forced the bank to revisit its inflation forecasts and now had estimated consumer prices will be 'several percentage points' higher than the former prediction of 7.25%. Inflation rate data will be released in the week ahead, with forecasts to rise from 5.5% to 5.9% in February. Other figures will include manufacturing, services, consumer sentiment, and retail data. UK Chancellor Rishi Sunak will also deliver the spring statement on Wednesday which could create some market movement. 

EUR

'Energy prices are expected to stay higher for longer'

Against the Euro, the Pound closed just 0.2% lower last week after dipping as much as 1.05%. Versus the US Dollar, the Euro rose by over 1.0% last week after the Federal Reserve sounded slightly less hawkish. Meanwhile, European Central Bank Chief Christine Lagarde said that the Governing Council stood by the people of Ukraine and noted that the war was driving up inflation and creating commodity shortages. Lagarde said: 'Energy prices are expected to stay higher for longer, with gas prices up by 73% since the start of the year and oil prices up by 44%. The pressure on food inflation is likely to increase.' This morning, Lagarde reassured markets that stagflation risks in the Euro Area are limited, even if the conflict between Russia and Ukraine intensifies. The European Central Bank will hold a non-monetary policy meeting in the week ahead, as well as the ECB's General Council meeting. Meanwhile, data will include consumer sentiment and manufacturing stats.

USD

Fed hikes interest rates and adjusts dot plot

The US Dollar softened against a basket of other majors, closing 0.75% softer as riskier assets continued to find favour. The Pound closed 1.01% higher against the US Dollar last week, after bouncing off 1.3000 lows. Meanwhile, the Federal Reserve hiked interest rates by 25 basis points, although some policymakers suggested a 50 basis point hike was warranted. This was the Fed's first interest rate hike since 2018, encouraged by a strong labour market and inflation registering 40-year highs. The Fed's projections for rate hikes, also known as the dot plot, was adjusted to show predictions for six interest rate rises in 2022, or 0.25% each. High-tier data out in the week ahead will include manufacturing, consumer confidence, and Durable Goods Orders stats. Other medium-tier numbers will come in the form of Mortgage Applications, New Home Sales, and Pending Home Sales.

AUD and NZD

RBA Lowe's speeches ahead

Last week, the Pound to New Zealand Dollar exchange rate closed 0.51% lower after climbing 1.0% in earlier sessions. Meanwhile, the Sterling to Australian Dollar exchange rate closed 0.62% softer after rising 1.66% higher earlier in the week. The Australian Dollar came under pressure in the first half of last week as risk appetite ebbed. However, as the week went on, the Aussie bounced on the back of the Federal Reserve's decision to hike interest rates and more positive risk sentiment. The AUD exchange rate also perked up after robust Australian employment data beat forecasts. In New Zealand, growth data showed a rebound in the final quarter of 2021, just below estimates at 3.0%. However, Covid disruptions are looking to hamper the 2022 numbers, with businesses under pressure with a lack of staff due to the illness as well as supply chain disruption, not to mention rising inflation. 

Reserve Bank of Australia Governor Philip Lowe will make some speeches in the week ahead, while manufacturing and services data will also be released. It's a quiet week for New Zealand data, but trade balance stats will be published. 

CAD

Inflation above forecasts

The Pound closed just 0.04% softer against the Canadian Dollar after reaching levels 1.02% higher earlier in the week. Last week, Canada's inflation rate increased by 4.8% on the year in February, despite forecasts to come in slightly lower at 4.5%. The non-core measure, which doesn't take into account volatile price items such as food and energy, rose by 5.7% in the same period. In the week ahead, it's a relatively quiet one for Canadian data, but the New Housing Price Index and Retail Sales stats will be released.