IFX Market Report: Thursday 21st April 2022

The Euro experienced a rare run of strong form on Wednesday due to hawkish speak from key European Central Bank policy makers. Martins Kazaks, ECB Governing Council member and Governor of Latvia's Central Bank said yesterday that a rate hike could come as soon as July. Mr Kazaks said that “a rate increase in July is possible, and I have no reason to disagree with what markets are pricing for the second half of the year”. Kazaks went on to add that the ECB “are on a solid path of policy normalization” where “we step-by-step gradually get to zero and then above”. That view on the timing of the ECB’s first interest-rate increase in more than a decade was echoed by his German colleague Joachim Nagel, who said it may happen early in Q3.

The President of Germany’s Bundesbank, the ECB‘s biggest shareholder and a conservative force on the Governing Council, was aiming to bring forward the first ECB interest rate hike in more than a decade after inflation in the Eurozone hit 7.5% last month. Speaking ahead of the IMF-World Bank spring meetings in Washington, Nagel said that “the numbers speak for themselves… the return to our medium-term target of around 2% is becoming more and more unlikely”. Nagel cautiously pointed out that the number and frequency of interest rate increases from the Q3 would have to depend on economic data.

Cable was able to recover some of its recent losses on Wednesday amidst a weaker Dollar. Thanks to failing US Treasury yields and upbeat market sentiment, GBPUSD was able to open at 1.3016 and close at 1.3049.

GBPEUR recorded a loss yesterday. The pair opened at 1.2038 and closed at 1.2020.

EURUSD was able to break off its tight trading range on Wednesday. The pair opened at 1.0813 and closed at 1.0856.

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