The Euro has failed to hold onto the gains it made at yesterday’s ECB interest rate meeting as a market risk-off mood dominates again over rising inflation fears and a potential protracted Russia-Ukraine war.
The Euro took a positive turn after the ECB announced they would end quantitative easing sooner than previously planned. This would open the door to higher interest rates in the Eurozone faster than anticipated (expectations now for 0.4% of rate hikes in 2022 vs 0.3% before the meeting). President Lagarde’s press conference was also bullish, stating the economic recovery was boosted by lower Covid cases and an upbeat labour market.
Nevertheless, the Euro gains were relatively short-lived against the USD as data showed US inflation hit a fresh multi-decade high in February (7.9%) and after Ukraine/Russia peace talks failed to make any progress. Furthermore, the conflict seems to be escalating with fighting intensifying and spreading to new areas of Ukraine. This has led to a renewed demand for safe-haven assets such as the USD.
Sterling has weakened on the back of this risk-off environment, despite the fact we saw the release of stronger than expected UK growth figures this morning (GDP at 0.8% vs. 02% expected). The Bank of England have a very difficult task of trying to manage rising price levels whilst sustaining the economic recovery from Covid; a task that has only been made more difficult from the Ukraine/Russian war.
As a result, GBP/USD is trading at its lowest level since November 2020. The GBP/EUR had touched a 1-mth low but has since edged a little higher this morning. The EUR/USD has seen some large swings over the past 24hrs but currently trades at subdued levels and below 1.10.
