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GBP losses continue as USD gains

Good morning

The US dollar continues to pile higher, EURUSD now down to 1.0725 and GBPUSD down to 1.2740. Macrons win in the French election did give EUR a little lift but it was short-lived, not enough to stop a global decline in risk sentiment. The key remains US rates are looking to push higher while global growth is at risk, with the ongoing Ukraine crisis, China Covid worries and inflation at a high.

ECBs Lagarde made it clear that half of EU inflation is driven by high energy prices and any number of rate rises will not bring down those prices. She did add that asset purchases would be reduced first and then they would look at interest rates. I still see some interest in upside EUR positions despite this recent decline.

GBP is really having a rough time as weak data last week, the high cost of living, doubts over rate rises, particularly in comparison to US rate moves, the ongoing uncertainty over whether Boris Johnson can stay in his job, plus the threat of tearing up the NI Brexit deal all combine to put pressure on the pound. For quite some time GBPUSD had looked comfortable around the 1.3000 area, that now looks a long way off. I have to admit that I am surprised we are down here, I’m also surprised GBP and lost more ground against EUR with EURGBP at 0.8425 (GBPEUR 1.1870). I wonder if the market is beginning to question the string of rate rises they expect from BoE.

USDCNY fixed at 6.4909 and has traded up to 6.5545 as Beijing warns of higher Covid infection rates which, while they stick to their zero Covid policy means lockdowns are likely to be extended. AUD and NZD have slipped against USD, trading down to 0.7165 and 0.6600 from a high late last week of 0.7455 and 0.6810 respectively. AUDNZD has dropped to 1.0860 as the AUD fares slightly less well than NZD, being generally more affected by events in China.

A diplomatic solution in Ukraine is looking less and less likely, Putin seems set on destroying vast areas of the country and certainly eager to seize as much territory in the South and East as possible. The West continues to support Ukraine with weapons and funds, the US SecState Blinken visited Kyiv over the weekend as the US pledge additional aid to Ukraine and other countries in Eastern Europe although made it clear there will be no US boots on the ground in Ukraine.

Some brighter news to start the week, my U15s continued their unbeaten run in the league with a 5-1 victory over our local rivals. It wasn’t a great spectacle, everyone seemed a little subdued for some reason but they got the job done and now only have eleven league matches to play! Second place now, just one point behind the leaders with four games in hand.

- 09.00 German IFO

- 10.00 EU construction output

- 13.30 US Chicago fed national activity index

- 16.00 BoCs Macklem, Rogers speak

- 18.00 ECBs Panetta speaks

- 00.30 Japan unemployment

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