After flopping yesterday, risk sentiment is on the upswing this morning.
Overview
Yesterday, President Joe Biden said that Russia had begun invading Ukraine. Russian President Vladimir Putin has repeatedly denied these intentions but also recognized separatist “republics” within Ukraine.The U.S. and European leaders announced numerous sanctions against the Kremlin. While the actions have been labeled as a “first tranche,” they were seen as a modest to underwhelming reaction to the invasion of a sovereign nation. As such, equities have been able to rebound and American share futures are in the green this morning.The increased tensions with Russia over the past few weeks have caused investors to pair back expectations that the Fed will hike rates by 50 basis points next month. Fed Fund futures showed a near 80% chance of a 50-basis point hike two weeks ago. They are now down to 42%.There is no major data out today, but there is a slew due out tomorrow and Friday. There is also only one Fed speaker on today’s docket so focus will remain on geopolitical headlines.
What to Watch Today…
- No major economic events are scheduled for today
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NZD
The New Zealand dollar was the big winner overnight, gaining just over 1% against the U.S. dollar. The Reserve Bank of New Zealand lifted interest rates by a quarter of a point, which was expected. The central bank also signaled it would ramp up the pace of future hikes to tame inflation, causing the Kiwi to rally. The RBNZ now sees rates rising to 2.5% by early next year. Both NZD/USD and AUD/NZD are at the highest rate since January 20th.
GBP
GBP/USD has maintained a rather tight range. The sterling gained a modest 0.1% against the U.S. dollar after Bank of England Governor Andrew Bailey said moderate rate rises are likely coming in the months ahead. The statement might seem obvious but was seen as slightly hawkish. Much like in the U.S., expectations had increased for a 50-basis point interest rate hike at the Bank of England’s March meeting. However, odds of a more aggressive hike have been falling in recent days on expectations that a clash with Russia could stifle the global economy.
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