IFX Market Report: Thursday 3rd March 2022

Sterling was able to recover some of its recent losses on Wednesday as it marked gains against both the Dollar and Euro. Reports of “renewed talks between Russia-Ukraine” helped Sterling advance as market sentiment improved. This decreased demand for safe-haven Dollar and after a strong run of form in recent days, the US Dollar Index (DXY) fell by 0.06%. Jerome Powell’s testimony helped cap the Dollars losses as the Federal Reserve Chair announced he is “inclined to propose and support a 25-basis point rate hike” at March’s policy meeting. Reuters report that “traders now see a 95% probability of a 25-basis point hike in March”.

Two key Bank of England policy makers, Jon Cunliffe and Silvana Tenreyro both spoke on UK inflation yesterday. Deputy Governor Cunliffe claimed “the crisis triggered by Russia's invasion of Ukraine would add to risks in financial markets which have already been made volatile by a shift to higher interest rates”. Monetary Policy Committee member Tenreyro pointed out that “the surge in energy prices caused by Russia's invasion will hurt British economic growth and raise short-term inflation pressures”. Reuters reports that markets still expect the BoE to raise rates to 0.75% on March 17th, and possibly as high as 1.5% by August.

GBPUSD started the day at 1.3290 and reclaimed the 1.33 handle as risk appetite improved. Cable finished the session at 1.3346.

GBPEUR also saw solid gains. The pair opened at 1.1980 and closed Wednesday at 1.2035.

EURUSD bounced between a 60-pip range on Wednesday – opening at 1.1096 and closing at 1.1088.

At 09:30 the UK publish its latest Markit/CIPS Composite and Services PMI’s. Composite PMI is forecasted at 60.2, with a previous of 54.2. Services is expected at 60.8. In the afternoon, the US weekly labour report is due to be published. US ISM Non-Manufacturing is scheduled at 15:00, forecasted at 61.

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