Markets Report - 26 April 2022

A daily breakdown of the markets for the 26th April 2022, provided to you by Sterlex.

🇪🇺💶This will largely depend on the economic impact of the war in Ukraine. EURUSD had been falling sharply for three sessions straight with several downside narratives weighing on the pair, before price action consolidated somewhat this morning. The extent of which largely depends on the profile of the speaker and whether markets have more concerns around high inflation than low growth. With the economic calendar populated with ECB speakers at a time when both the BoE and the Fed observe a media hiatus, focus will be on any change in stance from dovish ECB members and how far that could take EURUSD. Elsewhere in Europe, the National Bank of Hungary is set to hike its key rate by 100bps today. ECB President Lagarde already stated on Friday that bond buying will likely end early in Q3, while she also agrees there is a strong likelihood that rates will be hiked before the end of the year. At the moment, growth concerns are higher than last week with European equities having taken a hit yesterday and market expectations for rate increases in the eurozone having dropped from around 85bps last week to 71bps currently. Firmer expectations of a more hawkish ECB could prompt traders to turn slightly more bullish on the single currency as it trades at lows not seen since March 2020, however, it has only been the more hawkish ECB members that have discussed their preference for rate lift-off in July this year. Latvian central bank Chief Kazaks stated yesterday there is room for as many as three hikes this year, in line with market expectations, while he also said ending the asset purchase programme in early July is appropriate, however Kazaks is on the more hawkish side. Fears of low economic growth and high inflation in the eurozone, combined with a stronger US dollar on the back of rising US Treasury yields, means the pair is hovering just above a key psychological support level. The number of rate hikes, or the timing of lift-off, however, she left undisclosed.

🇬🇧💷🌍This casts doubts over the amount of fiscal headroom the Chancellor of the Exchequer has, especially as growth forecasts are downgraded while inflation is set to remain high. With the Bank of England observing a communications blackout ahead of next Thursday’s meeting, and economic data largely absent for the week, the pound trades at the mercy of broader market dynamics today. That being said, cumulative borrowing for the 2021/22 fiscal year sat at £151.bn, marking the third-worst year for public finances since 1947. However, unlike on Friday, the pound’s losses were contained against the euro as the bearish GBP drivers broadened. This morning, data out of the UK showed public sector net borrowing excluding banking groups come in at £18.1bn, £1.7bn below expectations. While poor consumer data on Friday continues to weigh on sentiment, especially around expectations for May’s rate hike from the Bank of England, broader market volatility drove sterling losses yesterday. The pound continued Friday’s freefall in yesterday’s session, dropping another percentage point against the dollar.

🇺🇸 🏦That panic has eased somewhat after measures the PBOC announced fresh measures to accommodate the economy, including a cut to the Reserve Requirement Ratio on FX contracts, but uncertainty still remains high with concerns around expanded and extended lockdowns being prominent. Beyond that, economic events out of the US are light as markets position for next week’s Fed meeting. For today, some focus will be on the release of the April Conference Board consumer confidence at 15:00 BST, shortly after the release of preliminary durable goods data for March at 13:30 BST, but we expect this to have little impact on market pricing of the Fed rate path. The US dollar looks to be in consolidation this morning after the bout of strength on Monday that was caused by a repricing of lockdown risks in China