Market Update

Sterling has continued to rise this morning against The EUR, reaching 1.2082 which is the highest in 12 months, with investors and traders focusing on market bets shifting towards a likelihood of The Bank of England raising rates again in March. Money markets are currently pricing in 108 bps of UK rate hikes this year compared with 130 bps before the Russian invasion into Ukraine. Although this has dropped slightly, The EUR has weakened due to economic concerns that the sanctions imposed by The Western World on Russia could have for Europe. It now looks likely that The European Central Bank may only raise rates by 20 bps by December 2022.

The Fed’s Jerome Powell stated yesterday that it is now appropriate to start raising interest rates in The States in order to curb any economic uncertainty. This position is largely in line with expectations, although it now seems sensible that rates will be raised by 25 bps as opposed to 50 bps initially. A 50 bps hike in March currently sits at 5% probability, although a hike of 50 bps is likely to happen between now and July, taking into consideration that The Fed would like to see 100 bps by July 1. Any move outside of these expectations could have an impact on The USD.

Elsewhere, The Bank of Canada also raised their Rates overnight from 25bps to 50 bps. The uncertainty from Russia’s invasion is causing the prices of Oil and other commodities to rise at levels not seen before the pandemic, the price of Oil per barrel yesterday reached $111.

Economically, the main piece of data for the rest of the week is Non-Farm Payrolls. The Fed have stated that the labour market is extremely tight right now, so tomorrow’s release will also have an influence on The Fed’s decision making on whether to hike by 25bps or 50 bps.

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