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Market Update

• Posted by Shyam Gokani in Bank of England, Currency, Dollar, Economy, EUR, Fed, GBP, Inflation, Rate Cuts, Sterling, UK, Uncategorised
• March 22, 2022
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Uncertainty. If there’s one word to describe the sentiment of FX and global asset markets right now that is it. As expected, President Lagarde’s speech today had no real effect on rates today stating that “we are not seeing the signs of stagflation currently”. Although that might be true for the current time period, that’s not expected to be the case later this year as growth forecasts dwindle and inflation continues to reach new heights.

The Euro has taken the frontline when it comes to loss of value against the pound and dollar with some parts of Europe relying on as much as 94% of Russia’s natural gas. As mentioned previously, as long as geopolitical tensions remain relevant, we can expect EUR/USD to be trading in a 1.09 – 1.110 range.

Here in the UK, things aren’t looking positive either. Analysts see inflation topping 8% in May, the Bank of England’s Governor Andrew Bailey sighted a weak economy during his last speech with pressure on income and energy prices affecting possible central bank monetary policy.

It’s clear to say inflation will not be solved by successive rate hikes. Overall, we can expect to see cable trading lower against the dollar back below 1.30 level to 1.29. Against the euro we can expect the pound to stay above the 1.18 mark until we see advancements in Russia-Ukraine tensions.

We have UK Public Sector Net Borrowing for February which will give us a brief insight into

the state of UK’s fiscal policy. We will most likely have to see future fiscal policy adjustments to support the economy in the wake of energy price inflation.