Sterling unimpressed by Sunak measures.

There is further evidence that Russian forces overall are unable to make headway in Ukraine with some Ukraine counter attacks.

There are concerns that Russia will take time to rebuild forces with a siege mentality and increase attacks on civilians in the meantime with fears over a prolonged conflict.

The NATO Summit will be very important during Thursday with pressure for increased military support for Ukraine. There will also be further sanctions on Russia from the US, increasing concerns that Russia will look to retaliate and disrupt energy supplies.

G7 and the EU will also hold summit meetings during the day.

Energy prices have strengthened to 2-week highs, increasing global stagflation concerns.

Cleveland Fed President Mester stated reiterated that frontloading interest rate hikes would better position policy going forward and that the Fed needed to make aggressive rate hikes earlier than later while she thought it would be necessary to do some 50 basis-point moves this year.

San Francisco head Daly also commented that the central bank is prepared to do whatever it takes to get price stability. She considers a neutral rate is around 2.5% and rates may need to go slightly above this level. St Louis Fed President Bullard stated that the central bank can run down the balance sheet faster than last time.

Longer-term US bond yields declined marginally on expectations of weaker growth and lower inflation late in 2022, but shorter-term rates have increased further.

Although the US 10-year yield declined slightly, the yen remained under pressure with USD/JPY posting a fresh 6-year high at 121.70 late in Asian trading on Thursday. Higher energy prices sapped support for the Japanese currency and the Bank of Japan remains committed to keeping bond yields close to zero.

Chancellor Sunak announced a cut in UK fuel duty and increased National Insurance thresholds, but the new economic forecasts tended to grab market attention.

The OBR downgraded the 2022 outlook substantially with GDP seen increasing 3.8% compared with 6.0% previously. For the following two years, forecasts are now 1.8% and 2.1% respectively. Given high inflation, the OBR also stated that real living standards are set to decline 2.3% for 2022/23, the sharpest decline on record.  Stagflation fears undermined support for Sterling.

There are strong expectations that the Swiss National Bank will leave interest rates at -0.75% at the latest meeting, but there is also speculation that the central bank rhetoric will be less dovish, especially as Swiss inflation has increased. Comments on the franc and scope for potential intervention in currency markets will be a key element.

There is scope for choppy trading following the meeting with the dollar around 0.9325 in early Europe. The franc will gain if the commitment to resisting franc gains appears weaker.

The Euro registered net losses on Wednesday with further concerns over the Euro-zone outlook and impact of higher energy prices. Overall dollar sentiment remained firm on expectations of more aggressive Fed tightening. EUR/USD did find support just above Tuesday’s lows and settled around 1.0985 on Thursday.

US longer-term bond yields edged lower which limited scope for further dollar gains. USD/JPY dipped to 120.60, but then recovered strongly to fresh 6-year highs at 121.70.

Sterling dipped lower with strong CPI inflation data and fiscal support measures priced iGBP/USD settled just below 1.3200 with GBP/EUR rallied to 1.2050 before stalling.

The Swiss franc was resilient with EUR/CHF around 1.0235. Commodity currencies continued to post net gains on Wednesday but failed to hold peak levels.

AUD/USD strengthened to test 4-month highs just above the 0.7500 level before a retreat to 0.7480. USD/CAD retreated to 2-month lows just below 1.2550 before a recovery to 1.2570.

Economic Calendar

08:15France - Markit Mfg PMI(MAR)57.2
08:15France - Markit Serv PMI(MAR)55.5
08:30EUR German Manufacturing PMI (M/M)(MAR)58.4
08:30EUR German PMI Services(MAR)55.8
08:30CHF SNB Interest Rate Decision-0.75%-0.75%
08:30EUR German Manufacturing PMI (M/M)(MAR)59.558.4
12:30USD Durable Goods Orders Ex Transportation(FEB)0.70%
12:30USD Durable Goods Orders (M/M)(FEB)1.60%
12:30USD Current Account Balance-205.0B-214.8B

*All rates shown are indicative of interbank rates and should only be used for indication purposes only. It is important to note that foreign exchange rates fluctuate and that rates may vary depending on the amount and the base currency that is purchased or sold. Rates are correct as of 8:00am UK time. CentralFX are not responsible for the rates shown.