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In its latest report, the German Bundesbank stated that higher energy prices will reduce household consumption as well as industrial production. The bank estimated that the economy stagnated in the first quarter of 2022 and the rebound for the second quarter is likely to be weaker than expected. The Bundesbank also expects that inflation will increase further in the short term, especially with supply-chain problems set to worsen. Bundesbank head Nagel stated that the risk of tightening policy too late has increased and that any delay in raising rates could require higher rates later. He added that the risk of second-round inflation effects was increasing.

There were further important concerns over the Ukraine war with Moscow stating that there is no basis for a possible meeting between Putin and Ukraine President Zelensky. He did, however, state that he is prepared to discuss a commitment not to join NATO. The Euro overall struggled to make headway.

Atlanta Fed President Bostic stated that the Ukraine war will heighten uncertainty, raise costs and exacerbate supply-chain problems. In that context, there were policy risks on both sides and the central bank will adapt as needed. He was less convinced that a more aggressive rate hike was appropriate, although would still be comfortable with more aggressive rate hikes if the data suggests that is appropriate. At this stage, he expects six rate increases this year and two more next year.

Fed Chair Powell stated that there is an obvious need to move expeditiously to a more neutral level of interest rates and more restrictive levels if needed to restore price stability. The Ukraine war may have a significant impact on the global economy, but the situation is highly uncertain and Fed projections could become out-dated very quickly. As far as the balance sheet is concerned, action could come at the May meeting, but no decision has been made. The dollar edged higher after the comments, although ranges remained relatively narrow. The overall hawkish Fed tone, however, gradually had a larger impact with market again scaling up expectations on the scale and speed of US rate hikes. The dollar strengthened further and the Euro dipped below 1.1000 with further losses to trade around 1.0965 on Tuesday.




The dollar was unable to make any headway ahead of Monday’s New York open, but the picture then changed radically later in the day amid sharp moves in bond markets. US Treasuries lost significant ground after the New York open amid reservations over the inflation outlook and the 10-year yield increased to a fresh 2022 high and the highest level for well over 2 years which underpinned the US currency.

Equities lost ground, but the dollar posted a net gain to 119.25 around the European close and continued to gain ground after hawkish rhetoric from Chair Powell.

There were strong expectations that the Bank of Japan would maintain a very loose monetary policy which continued to undermine the yen. US yields moved higher again on Tuesday with the 10-year yield around 2.33% and the highest reading since May 2019. Overall yield spreads continued to boost the dollar and the US currency surged to a fresh 6-year high around 120.30 in Asia while the Euro strengthened to 6-week highs above 132.0.




Sterling was able to make net headway on Monday with a suspicion that selling had been over-done following last week’s Bank of England policy decision. UK yields also moved higher with the 2-year yield above 1.30% which also underpinned the UK currency, although the global surge in yields limited the potential impact.

There were expectations that Chancellor Sunak would provide significant fiscal relief in this week’s spring statement which would be potentially important in giving the Bank of England greater leeway to raise interest rates to tackle inflation pressures. There were, however, important underlying concerns over the UK outlook.

Sterling briefly pushed above 1.3200 against the dollar, but was unable to sustain the advance while the Euro retreated to 0.8370.

Dollar strength dominated from late in the European session and Sterling retreated to 1.3125 against the US currency on Tuesday with little change against the Euro.




Swiss sight deposits increased to CHF728.9bn in the latest week from CHF718.0bn previously which suggested that the National Bank had not sustained the faster rate of intervention seen the previous week with only modest franc selling.

The franc was resilient during the day, especially when Wall Street equities moved lower. The Euro retreated to 1.0280 while the dollar secured only a marginal advance to 0.9320. Consensus forecasts are for the National Bank to leave interest rates at -0.75% this week, but with some speculation over a more hawkish policy statement given the increase in Swiss inflation. The dollar posted a renewed advance to 0.9365 on Tuesday as low-yield currencies remained out of favour.


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