Russia continues to increases pressure on Ukraine.

Ukraine headlines and global ramifications have continued to dominate markets during the past 24 hours.  Local officials have confirmed that the city of Kherson is under Russian control. Other cities remain in Ukraine hands, but there have been further attacks on main cities with Russian forces looking to encircle and cut-off both the cities and Ukraine forces.

Western countries have increased their condemnation of Russian actions and are looking to tightened sanctions while more countries have stopped trading with Russia.

The main market focus has focussed on the threat to commodity exports from Russia with a particular focus on the energy sector.

Global equities were able to recover ground on Wednesday, although the underlying mood remained extremely cautious. Oil prices have been a key focus with a fresh surge on fears that Russian supplies will be disrupted while US President Biden has pledged to look for ways to stop importing Russian crude. Supply fears dominated while OPEC stuck to its output plans.

Brent strengthened to the highest level since February 2013 with WTI also at 9-year highs with markets looking to assess the impact on the global economy and implications for markets. Central banks will also face even more difficult policy decisions with further upward pressure on inflation, but a negative impact on demand.

In prepared testimony to the House financial services committee, Fed Chair Powell stated that he expects it will be appropriate to raise interest rates in March with the need to move away from highly stimulative monetary policy settings.

He added that the impact of the Russian invasion of Ukraine is highly uncertain and that making appropriate decisions must recognise that the economy evolves in unexpected ways.

He also commented that the labour market is extremely tight and wages are increasing at the fastest rate in many years. Supply disruptions have also been larger and longer-lasting than anticipated.

The prepared comments reinforced expectations that the Fed would opt for a modest rate hike this month and Powell subsequently confirmed that the bank was expecting to raise rates by 0.25%.

The Bank of Canada increased interest rates by 0.25% to 0.50% following the latest policy decision which was in line with market expectations. The bank noted; “The unprovoked invasion of Ukraine by Russia is a major new source of uncertainty.” It did, however, also warn that inflation would be higher than expected and expectations could drift upwards. In this context; “the Governing Council expects interest rates will need to rise further.”

There was no clear forward guidance on potential rate moves, but with hawkish elements in the statement which supported the Canadian dollar, especially with support from the surge in oil prices.

ADP data recorded an increase in private-sector unemployment of 475,000 for February and above consensus forecasts of 380,000. The credibility of the data was, however, damaged further by revisions to the January data with the original figure of a 301,000 decline revised to show a substantial increase of 509,000.

In this context, there was little impact on expectations for Friday’s employment report.

Euro-zone CPI inflation increased more than expected to a record 5.8% from 5.1%. Despite the further increase in inflation, markets continued to lower ECB interest rate expectations.

The Euro overall remained under pressure during Wednesday as fears over the Euro-zone economic outlook increased. EUR/USD dipped to fresh 21-month lows below 1.1060 before a slight recovery and settled close to 1.1100 on Thursday. US bond yields moved higher which supported the dollar.

The yen and Swiss franc retreated slightly as equities rallied, but the franc was notably resilient. USD/JPY posted a net advance to 115.65 on higher US yields.

Sterling recovered strongly from early lows as risk appetite improved. GBP/USD found support at 2022 lows around 1.3270 and rallied to just above 1.3400. GBP/EUR rallied to 2-year highs at 1.1250 and close to 5-year highs.

The Canadian dollar strengthened after the Bank of Canada rate hike with USD/CAD retreating to 1-month lows around 1.2615 on Thursday.  Commodity currencies continued to draw underlying support. AUD/USD posted net gains to 3-month highs around 0.7320.

Economic Calendar

Expected Previous
07:30 CHF CPI (Y/Y)(FEB) 1.50% 1.60%
07:30 CHF CPI (M/M)(FEB) 0.20%
08:45 Italy - Markit/ADACI Svcs PMI(FEB) 48.5
08:50 France - Markit Serv PMI(FEB) 53.1 53.1
08:55 EUR German PMI Services(FEB) 52.2
09:00 Euro-Zone PMI Composite(FEB) 52.3
09:00 Euro-Zone PMI Services(FEB) 51.2 51.2
09:30 GBP PMI Composite(FEB 01) 53.4 53.4
09:30 GBP PMI Services(FEB) 53.3 53.3
10:00 Euro-Zone Unemployment Rate(JAN) 7.10% 7.00%
13:30 Nonfarm Productivity (Q/Q) -4.90% 6.60%
14:45 USD Markit PMI Composite(FEB 01) 50.8
14:45 USD Markit Services PMI(FEB) 50.9
15:00 USD Factory Orders(JAN) 0.50% -0.40%
15:00 USD ISM Non-Manufacturing PMI(FEB) 61 59.9
23:30 JPY Unemployment Rate(JAN) 2.80% 2.70%
08:55 German Unemployment Change(M/M)(FEB) -48K
08:55 German Unemployment Rate(M/M)(FEB) 5.20% 5.10%
10:00 Euro-Zone CPI (Y/Y)(FEB) 4.40% 5.00%
13:15 USD ADP Employment Change(FEB) -301K
15:00 CAD BoC Rate Decision 0.25% 0.25%
19:00 USD Federal Reserve's Beige Book

*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.