Summary
The USD has stayed strong throughout the conflict, while the war on the continent has predictably hit the EUR harder. GBP remains relatively strong against EUR but could weaken the short term due to rising energy costs impacting consumers.
The continued war likely means that central banks could become less hawkish in the short term whilst they assess the situation. And whilst the U.S. and U.K are both experiencing decade-high inflation levels, the E.U remains at a much lower level. This may provide the EUR with some relief as it sits at its lowest levels since Mar 2020 vs USD.
When we consider the compounding effect that the rising energy costs will have on inflation, the EUR may begin to find demand if the conflict ends sooner rather than later.
Week Ahead
On Thursday, The ECB governing council will meet. However, it will unlikely hint at or announce any policy changes, preferring to remain flexible whilst evaluating the economic fallout from the war in Ukraine. Do not expect any clues end dates for quantitative easing (Q.E.) or start dates for rate hikes as they did in December, which saw the EURO rally.
US CPI data is also out on Thursday and expected at 7.9% – the highest rate since the early 1980s, yet this increase is unlikely to increase the FEDs appointed for an interest rate hike bigger than 0.25pts.
On Friday, the University of Michigan Consumer Sentiment Index is out and will show if Russia’s invasion has begun to hit household spending power via higher gasoline prices – which will be a case of when not if.