Ukraine fears unsettle markets.

Markets have remained uneasy over developments in Ukraine over the past 24 hours with multiple areas of concerns. Germany agreed to send heavy weapons to Ukraine with the wider increase in military support reinforcing fears over an escalation in the conflict, especially with more aggressive rhetoric from Russia continuing.

Russia also announced that it was cutting off gas supplies to Poland and Bulgaria as the two countries refused to pay in roubles. The move increased concerns over a wider disruption of supplies to Germany and Italy.

After securing a limited and brief recovery, risk appetite deteriorated again during Tuesday with sharp losses across equity markets.

There were further concerns that global central banks would have to tighten policy aggressively to curb inflation which will result in a substantial tightening of financial conditions and increase the recession risk.

The slide was again led by the US tech sector with sharp losses for the Nasdaq index.  All risk-sensitive assets were under pressure.

Ukraine concerns were a significant negative factor for the Euro and the currency remained under pressure amid fears over the Euro-zone outlook. EUR/USD dipped to lows at 1.0635, testing the lows from March 2020 and a break below this level in Europe on Wednesday represented a 5-year low.

Confidence in the UK economy has continued to deteriorate and Sterling has also been damaged by the slide in global risk appetite. Sterling came under heavy pressure and GBP/USD slumped to 22-month lows around 1.2560.

Consumer confidence edged lower to 107.3 from a revised 107.6 previously and slightly below market expectations. The Richmond Fed manufacturing index edged higher to 14 for April from 13 the previous month and above consensus forecasts of 9, although there was a slowdown in the rate of growth in orders. There was very strong upward pressure on costs while the rate of increase in prices received eased slightly.

Australian consumer prices increased 2.1% in the first quarter of 2022 from 1.3% previously and well above consensus forecasts of 1.7% with the year-on-year increase at a 20-year high of 5.1% from 3.5%. Underlying prices increased 3.7% over the year from 2.6%. The data triggered increased expectations of a Reserve Bank rate hike at next week’s policy meeting.

The Bank of Japan policy decision will be announced on Thursday. The decision on whether to continue capping long-term bond yields will be a key element. The yen would strengthen sharply if the cap is lifted significantly.

Overall confidence in the Euro-zone outlook continued to deteriorate, especially with fears over an escalation in the Ukraine conflict. The dollar gained further support from a lack of confidence in the European outlook. EUR/USD remained under pressure and tested March 2020 lows at 1.0635 with another dip lower on Wednesday to around 1.0625. US longer-term yields moved lower as confidence in the global economy deteriorated with the 10-year yield below 2.80%.

The yen also gained defensive support as equities moved sharply lower. USD/JPY dipped to near 127.00 before a recovery to 127.85 on Wednesday. The slide in equities also supported the Swiss franc, although it failed to hold intra-day highs. USD/CHF posted 22-month highs around 0.9640.

Sterling remained under heavy pressure on domestic and global grounds. GBP/USD slumped to 22-month lows around 1.2560 before a slight recovery on Wednesday. GBP/EUR posted net gains to 0.8440, but failed to hold highs around 0.8460.

Commodity currencies surrendered gains as equities moved sharply lower.USD/CAD posted 6-week highs above 1.2800 before a limited correction. Stronger than expected inflation data triggered a recovery in the Australian dollar. AUD/USD bounced to 0.7185 from lows around 0.7120.

Economic Calendar

07:00German GfK Consumer Confidence (MAY)-14-15.5
07:45France - Consumer Confidence(APR)91
09:00CHF ZEW Expectations(APR)-27.8
13:30USD Goods Trade Balance(MAR)-106.35B
13:30USD Wholesale Inventories(MAR 01)1.40%
13:30USD Pending Home Sales (M/M)(MAR)-4.10%-4.10%
23:45NZD Trade Balance (M/M)(MAR)-385M

*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.