The war of words will continue this week as Russia and the U.S. battle to control the narrative around the Ukraine conflict whilst European allies push for a diplomatic solution. Markets will be on a knifes edge so expect volatility.
USA / DOLLAR
U.S. President Joe Biden and Russian President Vladimir Putin have agreed to a diplomatic summit offering new hope for a peaceful outcome to the Russia/Ukraine crisis. Positive news will provide markets with confidence, whilst any escalation will see further sell-offs of riskier assets and money flows into safe havens such as USD, Gold and Oil.
Talk of war has had some potentially beneficial side effects for the Fed, with a cooling effect on the markets and, therefore, inflation, as investors sit on their hands.
The U.S. Dollar was left struggling last week after the FOMC minutes of January’s Federal Reserve meeting left the markets clueless about the possible size of March’s interest rates rise and balance sheet roll-off. A 25pt hike seems the most likely, with JP Morgan predicting nine such sequential moves over the year.
This week’s key data releases start Tuesday with U.S. Flash Markit PMI data. U.S. 04 GDP is out Thursday and Durable Goods Orders(Jan) and Nondefense Capital Goods Orders ex Aircraft(Jan) is out on Friday.
EU / EURO
Again the Russia/Ukraine crisis will take centre stage in driving the price action this week. The Euro has started the week higher on news of diplomatic effort from the USA and Russia, which have damped fears of conflict on the continent.
Feb EU Market Markit PMI beat expectation this morning with a print of 55.8 vs 52.7. Falling Covid-19 infections and easing restrictions will have been vital factors in boosting the economy.
Otherwise, it is a quiet week on the data front, and the focus will solely be on the outcome of the diplomatic efforts with Russia.
UK / STERLING
Like the Euro, aviation of war on the European continent will strengthen Sterling, but the U.K.’s solid post-Omicron growth has been the most significant boost for the currency.
PMI figures released this morning showed positive growth, printing a rate of 60.8 and beating the consensus of 55.5. The Bank of England will now have the runway to increase interest rates in March.
Priminister Boris Johnson will lift remaining Covid restrictions for England on Monday and announce that people testing positive for the coronavirus will no longer have to self-isolate. Despite criticisms of jumping the gun, the U.K. economy has shown the most robust recovery in the G8, further supporting the Governments plans.