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  • richard evans

BoE raise rates, but hawkish ECB rattle markets

Good morning

Some pretty big moves in the majors yesterday, first it was GBP that looked like it would be king after BoE lifted rates by 25bps to 0.5%, with more to come. But then came the ECB, historically dovish, keeping policy unchanged but noting concerns over inflation, and while the ECB say they do not forecast rate rises this year, Lagarde failed in the Q&A to totally support this which the market took as a sign of possible rate rises later this year. EUR pushed higher and higher, EURUSD hit 1.1470 this morning, while EURGBP flew from a low around 0.8290 to reach 0.8440, or from 1.2060 to 1.1850 in GBPEUR terms.

The move in EURGBP is very interesting, particularly given BoE actually raised rates and indeed four members voted for 50bps rise, while ECB merely hinted at the possibility although a first rise in September is now favoured by several banks. I have seen a few banks looking at upside GBP trade ideas against CHF, SEK and USD, but with ECB potentially hawkish now there is less interest to sell EUR in general. It is possible ECB rates will be raised to zero by year end, making the risk-reward for short EUR positions has certainly waned.

Some attention has switched to JPY, still with negative rates and BoJs Kuroda making it clear that they will keep an ultra-loose monetary policy, which has encouraged some euro shorts to switch to yen shorts. USDJPY now above 115.00, EURJPY up from mid 129s to 131.80, GBPJPY testing up at 156.50 several times but so far unable to break through.

That’s not all. Energy prices have risen substantially for millions of people to uncomfortably high levels. Four of Boris Johnsons senior aides resigned yesterday, while the Northern Ireland First Minister Paul Givan also resigned in protest over the NI protocol which outlines post-Brexit trade rules. The Boris aides could be seen as the ones taking the blame for the lockdown gatherings, as Boris has said he plans to fix what is wrong at No 10. I’m surprised more isn’t being made of the Givan resignation. There is much unhappiness about this, at a time when Northern Ireland need some stability, it is plunged back into a more uncertain position.

US have repeated recent allegations that Russia are planning to stage a fake attack by Ukraine which would give Russia a reason to invade their neighbour. Russia deny the claims and I guess we will never know if there is truth behind them, but it does make life harder for Russia to produce video evidence of an ‘attack’. Is this enough to dissuade Moscow from following through with such plans?

China has been on holiday but is back in news as winter Olympics starts today. Some events have actually started but the opening ceremony is later this morning. It will be a strange Olympics, there will be no paying spectators, friends or families in the stands as China grapples with its zero Covid policy. Every participant, official and volunteer will take daily PCR tests and anyone attending is subject to strict ‘bubble controls’. Talk is that some have been told that they must not leave their cars while travelling to and from venues. All that, together with the boycotts over alleged human rights abuses, will make for an unusual set of games.

US employment data out today means we cannot sit back and relax just yet. Mind you looking out of the window all I see is heavy rain so may as well sit at my desk. It feels like we haven’t had rain for a while now, but this downpour seems to be making up for that. The forecast suggests we may get some rain on Sunday when my U15s play in the quarter finals of the County Cup. I’m looking forward to it but I can say I’m actually quite nervous already. I’ll report back on Monday. There is also some FA cup action this weekend, and for rugby fans England take on Scotland in the Six Nations tomorrow.

- 09.30 UK markit construction PMI

- 10.00 EU retail sales

- 13.30 US nonfarm payrolls

- 13.30 CAD employment

- 15.00 CAD Ivey PMI

- 20.30 CFTC positon data

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