Military action by the Russian army in Ukraine has shown no signs of de-escalation, but markets are hoping for more detailed peace talks despite the lack of success of the latest summits. In global markets, tentative optimism on Ukraine dealt a blow to commodities with WTI back to trading below 100$/barrel. The US calendar today includes the Empire Manufacturing index and PPI both unlikely to generate any tangible market reaction ahead of tomorrow’s FOMC announcement. The dollar may continue to show some selective strength into the FOMC.
The CAD is little changed from yesterday. The drift lower in crude and commodity prices have certainly forced the loonie lower against the USD. Canada releases CPI data Wednesday but last Friday’s strong labour market data is sufficient enough to suggest that another 25bps hike from the BoC is coming in April. Strong domestic growth momentum suggest the CAD may be able to shrug off its recent soft performance against the USD as we move into Q2. Most forecasts call for a stronger loonie with a sub-1.25 trading range. For now, geopolitical risk and commodity prices will continue to drive short term direction for the currency. USD/CAD Chart.
With markets having now fully processed the ECB’s hawkish surprise from last week, EUR/USD is back to being fully driven by sentiment around the Russia-Ukraine conflict. Markets appear to be taking a relatively sanguine approach when it comes to ongoing peace talks despite no signs of de-escalation and have continued to gradually price some geopolitical risk out of commodities and European currencies. Today, some focus will also be on data in the eurozone, with the German ZEW set to show a very significant contraction given the impact of the war and high energy prices. Still, this should not itself prevent a move back above 1.1000 in EUR/USD today, given the ECB’s rhetoric that fighting inflation now matters more than growth considerations.
This morning’s UK jobs report for the month of February continued to signal tightness in the labour market and accelerating wage-growth dynamics, which support the prospect of another hike by the Bank of England on Thursday. A 25bp hike was already fully priced in by the market, so the jobs data had no positive impact on GBP this morning. The pound is set to remain entirely driven by sentiment on the Russia-Ukraine war, where the recent optimism could help GBP/USD avert a break below the key 1.3000 level.
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