Investors expect that the Bank of England (BoE) will raise interest rates at its monetary policy meeting on Thursday. Andrew Bailey, governor of the BoE, is anticipated to increase the interest rate by 25 basis points (bps). A rate increase of 25 basis points is considered insufficient to alleviate price pressures.

Barclays' foreign exchange analysts predict that the pound would likely decline; however, Goldman Sachs is more optimistic about the UK currency's prospects, particularly when compared to the euro.

Interest rate hike expectations and the pound

The pound has risen the last few months against both the euro and the US dollar, but Thursday’s BoE announcement will set the tone and test the pound. The biggest risk for the pound will be the size of the hike and pound forecasts. If the Bank fails to meet expectations and delivers another 25 basis point rate hike then the pound could weaken. Following the governor’s and other members of the Monetary Policy Committee (MPC) who have expressed the bank’s willingness to act and control inflation, the market has now almost fully "priced" in a 50bp raise.

What foreign exchange analysts have said

Analyst at Barclays in London, Marek Raczko, said: "A delivery of 50bp could trigger a small knee-jerk rally in the pound, while a 25bp move should see a bigger sell-off." However, he explained that any increase in the pound will be temporary since the BoE’s updated forecasts could warn about stagflation.

This may be similar to May’s policy update, where the BoE raised rates but released forecasts showing that inflation would fall below the 2.0% target over the medium-term while growth would fall into negative by next year. Following May’s announcement, the pound weakened. Against the euro, the pound performed better after the BoE’s update based on its promise to act more forcefully.

For example, if the bank mentions any risks of stagflation or sounds dovish in its forward guidance regarding future hikes, then this will push the pound lower.

Currency strategists at Goldman Sachs are more confident and expect the MPC to hike by 50bp breaking away from their usual 25bp rate hike. As Zach Pandl, co-head of FX Strategy at Goldman Sachs in New York said: "The key question for the meeting next week in our view is how policymakers will balance the strong spot wage and inflation data against the gathering storm clouds over the Euro area economy." "We have argued that the MPC’s more balanced approach to getting inflation lower would lead to Sterling underperformance, and we do not expect a wholesale shift away from this strategy at this meeting,” he added.

A 50bp hike is a considerable change in the Bank's approach and will definitely make the bank stand out, especially against the US central bank, since markets have now lowered their expectations for further rate hikes by the Federal Reserve.  

Stagflation warning

A dire warning from a leading think tank may also influence the bank’s decision tomorrow. The UK is heading into a period of stagflation according to the National Institute of Economic and Social Research (NIESR). The think tank warned that the country will experience a period of high inflation and a possible recession as the cost-of-living crisis hits households.

In its latest quarterly outlook of the UK economy, NIESR has said that CPI inflation will peak close to 11 per cent in the fourth quarter of this year, when energy bills will surge over £3,000 per year.

“The UK economy is heading into a period of stagflation with high inflation and a recession hitting the economy simultaneously,” said Stephen Millard, NIESR’s deputy director for macroeconomics. “It’s now up to the Monetary Policy Committee to make sure inflation does come down next year and the new Chancellor to support those households most affected by the recession and cost-of-living squeeze,” Millard said.

With the current volatility and concerns about an economic slowdown, contacting a currency specialist will allow you to safeguard your business and finances by planning ahead. If you are a business transferring funds overseas, get in touch with Universal Partners FX and their dedicated team to discuss the latest market movements ahead of your currency exchange. Universal Partners FX can provide invaluable help on efficient risk management and tailored solutions to your business’ transfer needs.

 

The pound rose against both the euro and the US dollar after the Fed’s decision yesterday to raise interest rates a further 75 basis points. Ahead of next week's Bank of England policy update, and with limited economic news, the pound will be influenced by broader market sentiment.

While the Fed’s decision was anticipated, the guidance provided has relieved markets as the Fed doesn’t intend to accelerate the pace of rate hikes. This, however, did not offer support to the US dollar.

The pound could strengthen further if the positive market sentiment continues over the coming weeks, analysts have noted.

The Fed adds more pressure on the Bank of England

The Fed’s rate hike of 75bps for a second straight month has added more pressure on the Bank of England. The BoE will have to act more forcefully to combat rising prices.

The US central bank kept up the fast pace of interest rate increases and promised to raise borrowing costs even further despite concerns about a slowdown in the economy. It is the first time US rate-setters have decided on such drastic rate hikes and analysts point out that their move would force other central banks to act.  

While the Fed will start to slow their rate hike cycle as demand has dropped, Fed chairman Jerome Powell has signalled that further US increases will be coming soon.

With real GDP shrinking as it was revealed on Thursday, due to rising inflation, economists have argued that the Fed should have tightened much more quickly, much earlier on. The mistake now will be for the Fed to back off tightening and allow stagflation to persist. What is clear now is that the primary goal for the Fed is the need to reduce inflation, which perhaps is what other central banks need to realise too.

This draws attention to the Bank of England, which is now under pressure to curb inflation, especially as the elections begin for the party’s next leader.

Bank of England interest rate rise

The Bank is considering a 0.5 percentage point increase ahead of its meeting next week. This will be the biggest rate hike in almost three decades.

The BoE, the Fed and other major central banks face a difficult task as they need to tame inflation while not throwing their countries into a potential recession. Powell said the US is not currently in recession but stated there are growing signs of a slowdown as monetary policy tightens.

A Reuters poll of economists found that the Bank of England (BoE) will likely avoid a bigger interest rate rise on the 4th of August and instead stick to the more moderate 25 basis point increase it has been delivering. There was speculation that the BoE would deliver a larger rate hike based on Governor Andrew Bailey’s recent comments of a half-point hike being a possibility.

A majority of respondents expect Bank Rate to be at 2.25% or higher, compared with 1.75% in the previous poll. The poll gave a median 55% chance of a recession in the coming year, with 30% economists seeing at least two consecutive quarters of contraction.

11 of 18 respondents said the current cost of living crisis would persist for over a year before it eased significantly.

Whether the Bank of England will deliver a 50 basis point rate hike next Thursday or a smaller one, many analysts argue that the window for further hikes is closing, as recession fears have increased.

With the current volatility and concerns about an economic slowdown, contacting a currency specialist will allow you to safeguard your business and finances by planning ahead. If you are a business transferring funds overseas, get in touch with Universal Partners FX and their dedicated team to discuss the latest market movements ahead of your currency exchange. Universal Partners FX can provide invaluable help on efficient risk management and tailored solutions to your business’ transfer needs.

 

The pound gained some fresh impetus against the US dollar on Wednesday due to dollar weakness and risk-on sentiment. Market participants will wait for the key FOMC decision later on Wednesday.

Before the key central bank event, traders would focus on the release of US Durable Goods Orders which along with market risk sentiment could drive demand for the dollar and create trading opportunities for the pound to dollar currency pair.  

Fed interest rate decision

The US dollar was unable to gain traction due to expectations that an economic slump would force the Fed to decrease the pace of its policy tightening. In addition, the safe-haven dollar was weakened by a quick recovery in the stock markets, which in turn provided some support for the GBP/USD pair.

The US central bank is likely to raise interest rates by 75 basis points to curb high inflation when it makes its announcement later in the US session. However, due to the deteriorating economic outlook and escalating recession fears, market participants are still split on the necessity for further aggressive rate increases.

The expected increase in the target federal funds rate is estimated that it will hurt economic activity. It will be one of the fastest and bigger changes in monetary policy. There has been little progress in fighting inflation, while signs that the economy is under pressure are rising. Fed officials have the difficult task of weighing how much tighter monetary policy needs to be to slow inflation against the risk of triggering a recession.

The US economy "is likely to have contracted in the first half of the year, but job growth remains robust. Inflation is leading to record-low consumer sentiment, but consumers are still spending," Greg Daco, chief economist at EY-Parthenon, wrote this week.

Investors will therefore keenly monitor Fed Chair Jerome Powell's remarks at the post-meeting press conference for clues regarding short-term policy. This in turn would impact on near-term USD price dynamics and the direction of the GBP/USD pair.

Bank of England interest rates

The British pound gained some additional support as traders believe that the Bank of England will increase interest rates by 50 basis points at its upcoming policy meeting in August. The pound, however, may suffer from Brexit uncertainty.

Since the inflation rate has already reached a record high of 9.4%, the UK economy is already experiencing difficulties and the Bank of England will find it more challenging to act, as the latest economic data has been weak. While the BoE will have to raise interest rates, decreased demand and slower wage growth would intensify recession fears.

Policymakers at the BoE will weigh up whether to raise interest rates to stop inflation from becoming entrenched in the economy. Since December, the BoE has raised rates five times and has said in June it was ready to act forcefully if needed.

With the current volatility and concerns about an economic slowdown, contacting a currency specialist will allow you to safeguard your business and finances by planning ahead. If you are a business transferring funds overseas, get in touch with Universal Partners FX and their dedicated team to discuss the latest market movements ahead of your currency exchange. Universal Partners FX can provide invaluable help on efficient risk management and tailored solutions to your business’ transfer needs.

 

The pound struggled to retain its gains and fell lower on Friday against both the US dollar and euro. Recession fears and concerns about rising gas prices in the Eurozone are adding to worries about a slowdown in economic growth in the UK and Eurozone.

Global investor sentiment remains fragile as recession fears grow and will support the safe-haven US dollar.

In the UK, political uncertainty and Brexit troubles have clouded prospects for further tightening by the Bank of England and weakened the pound. In general, the combination of these factors suggests that there is a prospect for further losses for Sterling.

On Friday, US economic releases including the Empire State Manufacturing Index, Industrial Production and Michigan Consumer Sentiment Index will provide direction for the dollar and could influence the pound to US dollar exchange rate. More influential will be Atlanta Fed President Raphael Bostic's speech and US bond yields. On a broader level, market risk sentiment will also influence the pound.

Pound to fall over the coming days

Economists at ING expect the pound to US dollar currency pair to fall in the coming days. A strengthening US dollar will keep the pound lower, while the euro to pound exchange rate will remain rather stable, unless any news relating to the Eurozone push it lower.

In the UK, analysts will focus on the Tory candidates’ TV debate. It will be of interest to see the first debate between the remaining five candidates on Friday, as market participants will be able to tell each contender’s position on policy and Brexit.

China

News that China’s economy shrank have weighed on market sentiment and increased fears about the global economy. China’s growth slowed in the last quarter, following Covid-19 outbreaks and restrictions. According to the latest data, China’s economy contracted by 2.6% in the April-June quarter, much worse than expected.

On an annual basis, China’s GDP grew only 0.4%, which is the slowest since the first wave of the pandemic in 2020. More recently, Shanghai was under lockdown restrictions for two months which resulted in supply chain disruptions and factories halting operations.

Lower Fed rate hike expectations push dollar lower

Expectations for aggressive rate hikes have eased after Fed governor Christopher Waller said he preferred a 75bp hike and was not yet ready to go with the 100bp hike. After Wednesday’s red-hot inflation report, markets had priced in a 100bp hike rose. Other Fed governors have also suggested they were open to raising interest rates higher. An aggressive monetary policy tightening would push the cost of borrowing up and cause an economic slowdown, not just in the US but globally given the importance of the US economy and its currency.

However, Waller's comments suggest that a bigger rate hike is not definite, and this has pushed the dollar lower.

This also relates to the pound and what the Bank of England does next. Faster rate hikes at the Fed would mean that the BoE would have to act to keep the pound up. Differences in the two banks’ policies could keep the pound lower as the BoE won’t be able to keep up with the Fed’s more aggressive approach.

On the euro front, the attempted resignation on Thursday of Italy's Prime Minister Mario Draghi could keep the euro lower and offer support to the pound as this could affect the ECB’s plans to raise rates in the coming months. If ECB rate hike expectations diminish, this will weaken the euro and boost the pound to euro exchange rate.  

With the current volatility and concerns about an economic slowdown, contacting a currency specialist will allow you to safeguard your business and finances by planning ahead. If you are a business transferring funds overseas, get in touch with Universal Partners FX and their dedicated team to discuss the latest market movements ahead of your currency exchange. Universal Partners FX can provide invaluable help on efficient risk management and tailored solutions to your business’ transfer needs.

The pound recovered against a weaker US dollar, ahead of the Fed interest rate decision on Wednesday. The Fed has signalled that it will deliver a 50-bps rate hike in June and July, but markets expect a 75-bps increase following the surge in US inflation reported last Friday. 

The GBP/USD was injected with new life following the return of risk appetite on positive Chinese activity data and as concerns eased ahead of the expected 75-bps rate hike by the Fed. On Thursday, the Bank of England’s monetary policy decision will be the main event after Wednesday’s Fed decision. The BoE Is widely expected to hike the key rates by 0.25 bps to 1.25% this June. A surprise 50-bps rate hike is still a probability due to surging inflation.

Global stock markets recover

The pound rose as investor market sentiment improved and global stock markets recovered. Analysts have warned that the positive investor sentiment might be transient and that the pound rally might soon be followed by a trend lower.

The Sterling recovery reflects the similar recovery in global stock markets with the Footsie gaining 1% and the German Dax 1.50%.

The British currency has commonly responded to changes in risk appetite, and this is an example of that. In the previous day and earlier on Wednesday, Sterling suffered losses following Brexit and economic concerns combined with a fall in the stock market, which pushed the pound to multi-year lows against the euro and US dollar.

Fed rate expectations

Markets will remain cautious ahead of the Fed’s decision later today at 19:00 BST, with a potential hike of 75-basis points. The increase in US rates will push the cost of borrowing higher and reduce global dollar liquidity, creating challenges to economic growth in the US as well as globally.  

If capital flows decline, and market sentiment sours then the pound will be at risk. A hit to global risk sentiment is not good news for the pound. On the other hand, the pound could strengthen against the US dollar if the Fed’s hawkish plan to hike interest rates proves to be too aggressive.

Bank of England and rate hikes

On Wednesday, members of the Bank of England's Monetary Policy Committee will meet to discuss  monetary policy and how to tackle domestic inflation and a slowing economy. Their decision will be announced on Thursday at 12:00 BST. The Bank of England is expected to deliver a rate hike that exceeds 25 basis points, economists have noted, as it has no other choice but to support the currency. The BoE is aware of the Fed’s aggressive interest rate hikes and how these will affect the UK’s monetary conditions and the pound, and analysts stated that it will act accordingly and not in isolation. The BoE is then expected to act boldly in response to a hawkish Fed and possibly deliver a 50-bps rate hike, some analysts have predicted.

With the current volatility and concerns about an economic slowdown, contacting a currency specialist will allow you to safeguard your business and finances by planning ahead. If you are a business transferring funds overseas, get in touch with Universal Partners FX and their dedicated team to discuss the latest market movements ahead of your currency exchange. Universal Partners FX can provide invaluable help on efficient risk management and tailored solutions to your business’ transfer needs.

The pound could strengthen against the US dollar in June, according to research from French banking giant Société Générale.

It has been noticed that in eight of the last ten years, the pound has risen against the greenback, as June appears to be a poor month for the US dollar.

As strategist Kenneth Broux at Société Générale noted: "Seasonals traditionally turn negative USD in June, but this recurring trend could be tested if investors rushed too quickly to conclude that the Fed will be less aggressive in raising rates this year."  At the same time, the US dollar has weakened following disappointing macroeconomic data and diminishing expectations for further interest rate hikes by the Fed.

Weak US dollar

The US dollar has recently fallen due to weak economic data and markets pricing less interest rate hikes by the Federal Reserve this year. This, combined with a broad-based decline in US Treasury yields and cautious comments by some Fed policymakers including Atlanta Fed President Raphael Bostic this week have raised the possibility that the dollar's gains could be limited. The market is cautious as the Fed could pause its tightening cycle in September. This sentiment has driven the dollar lower.

Sterling could rise

Sterling could strengthen from expectations of a June rate hike at the Bank of England, especially after the government’s $15bn boost to struggling households to ease the cost of living. The cash giveway could help increase economic activity and consumer confidence and boost inflation rates, forcing the Bank to consider raising rates.

The pound to US dollar exchange rate rallied after the release of the Fed’s minutes from the May policy meeting, which confirmed that policymakers could reconsider their interest rate position depending on the outlook of the economy. For example, if inflation rates fall significantly in the months ahead, then FOMC members would be “prepared to do less.”

The Fed and interest rate hikes

Chairman Powell and other members of the Fed have noted that they are prepared to lift interest rates more but also “to do less” if inflation rates begin to fall during the months ahead. According to their minutes, Federal Reserve officials stressed the need to raise interest rates quickly and more than markets anticipate to manage surging inflation. They also noted that policy may have to move past a “neutral” stance in which it is neither supportive nor restrictive of growth. As they stated in the minutes, “Most participants judged that 50 basis point increases in the target range would likely be appropriate at the next couple of meetings.” But the Federal Open Market Committee members clarified that “a restrictive stance of policy may well become appropriate depending on the evolving economic outlook and the risks to the outlook.”

This is important for the pound. If the Federal Reserve’s hiking expectations are lowered further then the US dollar will come under more pressure, while the pound will rise.

With the current volatility and concerns about an economic slowdown, contacting a currency specialist will allow you to safeguard your business and finances by planning ahead. If you are a business transferring funds overseas, get in touch with Universal Partners FX and their dedicated team to discuss the latest market movements ahead of your currency exchange. Universal Partners FX can provide invaluable help on efficient risk management and tailored solutions to your business’ transfer needs.

In worrying times like this, it is important for us to point out that we completely acknowledge the wider implications of international conflict. Our principle duty as a company is to ensure that our clients are aware of all of the factors that affect currency exchange rates, which sadly sometimes includes war. Our thoughts are with everyone who is being affected by this escalating situation, and our currency updates do not intend to diminish, ignore or undermine the true impacts of this conflict.

The cloudy market mood due to fresh western sanctions against Russia and atrocities against Ukrainian civilians has hurt the risk-sensitive pound. Adding to this is the policy divergence between the Bank of England and Federal Reserve, as the latter remains more hawkish and determined to tighten monetary policy. For those exchanging pounds to US dollars or vice versa, the key event will be the Fed minutes released later today at 7pm BST.

The pound weakened since yesterday, despite starting the new week on a positive note, as investors’ confidence was hurt following rising tensions in the Russia – Ukraine conflict, reports of war crimes and western sanctions against Kremlin.

Central Bank divergence

Markets are expecting the Federal Reserve to proceed to aggressive tightening, with the potential to announce both a balance sheet reduction and bigger rate increases in the upcoming May meeting.

The divergent monetary policy outlooks between the Fed and the BoE have kept the pound lower against the US dollar. BoE policymakers remain in a difficult position and have avoided pointing to any further rate rises, as they fight surging inflation and risks to economic growth.

Traders will focus on the Fed March meeting minutes for guidance regarding a rate hike in May. Chairman Jerome Powell has said previously that the minutes will contain details of the bank’s plan for quantitative tightening including the size of the targeted monthly balance sheet reduction.

Market participants expect the balance sheet to shrink by $US2½ trillion, but some analysts have noted that the Fed will be less aggressive, and the US dollar could weaken in response.

The US dollar rose against both the euro and the pound after two US policymakers warned that the Federal Reserve could decide as early as next month to begin shrinking its near-$9trillion balance sheet faster than expected.

Ukraine and Eurozone politics

The euro is lower and pressure on the single currency will continue as the Russia – Ukraine conflict and rising political risks ahead of the French elections persist. The upcoming April presidential election in France and uncertainty about the outcome will weight on the euro.

New sanctions against Russia will have a negative impact on both the euro and the pound. Both currencies will also continue to be under pressure as the war in Ukraine rages on and energy supply risks continue too. The imposed sanctions will affect negatively western countries and Europe in particular. The White House said that the US government and its allies will impose new sanctions on Russian banks and officials on Wednesday and ban new investment in Russia. The head of the European Commission also said that there will be further sanctions including examining energy imports on top of those announced on Tuesday.

Headlines regarding news about the war in Ukraine will influence both the euro and the pound and both will also be sensitive later today to the release of the minutes from the March meeting of the Federal Reserve.

Scotiabank and Credit Suisse economists expect the pound to weaken further. As Scotiabank analysts noted, “widening gilts-UST yield differentials have begun to weigh more clearly on the pound in recent trading” and could even go lower. They added that the pound will weaken further as the “gap between year-end hike expectations widens further.”

The pound is at its lowest on Thursday as investors await the Bank of England interest rate decision. The Bank is expected to raise interest rates for the third meeting in a row by 25 basis points up to 0.75% at noon today. Despite the economic uncertainty following the war in Ukraine the Bank is anticipated to hike borrowing costs but to also strike a cautious tone about the economic outlook.

However, analysts have noted that market sentiment towards the pound might have now become too gloomy, as the pound has underperformed recently. If the Bank votes for a larger hike this month, then the pound could strengthen. According to market pricing expectations, 134 basis points of rate hikes will be delivered by the end of 2022, so that the Bank fights inflation.

Inflation concerns

Other economists remain optimistic and anticipate the Bank to deliver a supportive message especially since inflationary pressures will increase due to the war in Ukraine. Some economists have said that with accelerating inflation, the Central Bank will have to raise rates further. With the labour market tighter for a longer period of time, economists have said that the BoE will raise interest rates from 0.50% currently to 2.00% by the end of 2023.

Inflation has reached 5.5% in January, and is expected to rise over 7% in April, so the Bank will need to act by tightening its policy. Higher wages mean higher inflationary rates, which the Bank of England will control by raising interest rates. A wage-price spiral could develop at a time when struggling households seek help to respond to the cost-of-living squeeze.  

The higher oil and commodity prices after the Ukraine war have also added to the inflationary pressure and have hurt the UK’s economic outlook. It may not be an easy decision for the Bank but raising rates might be the most likely scenario.

Cautious BoE

The Bank of England could strike a more cautious tone than markets are expecting due to the war in Ukraine, which could push the pound lower. According to Barclays, if the Bank is concerned with growth following the war in Ukraine, instead of prioritising inflationary pressures this could weaken Sterling.

Markets will also be looking at how the members of the MPC will vote and, if the number of those voting for a 50 basis point rate hike falls, then this will also push the pound lower.

As RBC Capital Markets explained:

“The impact of the Russia-Ukraine war means that inflationary risks are very firmly tilted to the upside, and higher inflation is likely to persist for longer than previously thought with the hit to real incomes from that weighing on demand. At some point, the MPC will be forced to consider the trade-off between responding to higher supply-side-driven inflation and dealing with slower growth.”

Yesterday, the Federal Reserve raised US interest rates for the first time since 2018. Now markets are looking to see whether the Bank of England will increase its UK borrowing costs for a third time in a row. The BoE will have to make a tough decision as it faces a dilemma. On the one hand, inflationary pressures have increased following the war in Ukraine. On the other hand, UK households are struggling to manage higher costs following higher energy bills and higher taxes. But there are other concerns from Bank of England committee members who fear that the economy will enter a recession as a result of over-aggressive interest rate increases.  

In worrying times like this, it is important for us to point out that we completely acknowledge the wider implications of international conflict. Our principle duty as a company is to ensure that our clients are aware of all of the factors that affect currency exchange rates, which sadly sometimes includes war. Our thoughts are with everyone who is being affected by this escalating situation, and our currency updates do not intend to diminish, ignore or undermine the true impacts of this conflict.

The pound rose on Wednesday following encouraging news on the peace talks between Ukraine and Russia. Economists at Scotiabank expect a hawkish Fed and a cautious BoE to push the pound against the US dollar lower.

While the Fed is expected to hike by 25bp today and signal 90bp of further tightening this year, the move is fully priced in by markets and the main driver for today will be the optimism surrounding the peace talks today. There are no data releases in the UK calendar today and the pound will continue to find support from market optimism around a possible de-escalation in Ukraine. Investors are also perhaps a bit cautious ahead of tomorrow’s Bank of England meeting, where a rate hike and more positive comments could help the pound rise. If there are no surprises from the Fed today, then the GBP/USD should be able to hold on its gains.

The positive market sentiment has also pushed European stock markets higher, with the FTSE 100 index in London up 1% at 7,249 and the Germany, French and Italian exchanges 3% ahead. The pan-European Stoxx 600 index rose 2.6%.

Russia – Ukraine peace talks

Ukraine’s president Volodymyr Zelenskiy said the talks were “more realistic” while Russian foreign minister Sergei Lavrov said there was “some hope for compromise,” with Russia demanding a neutral status for Ukraine.

Since the 24th of February when the invasion began, Russian troops have failed to seize any of Ukraine’s biggest cities, while they have aggressively bombed and destroyed smaller towns and cities.

What does Russia demand?

One of the central questions is what President Vladimir Putin wants, as many have claimed that he seeks to restore Russia’s sphere of influence over older Soviet territories like Ukraine, and to stop their links to the West. Putin also seems to want to overthrow Ukraine’s pro-Western government and install a pro-Russian puppet leadership, so Ukraine is under Russia’s influence.

In terms of the talks, Russia wants legal guarantees that Ukraine will never be allowed to NATO and wants Ukraine to sign a neutrality agreement and change its constitution to solidify this reality.

Moscow has demanded that Ukraine recognise the independence of pro-Russian republics of Donetsk and Lugansk. It has also demanded that Ukraine recognises Crimea, which it annexed in 2014, as Russian territory. And it has called on Ukraine to cease all military activity.

In a televised speech to government ministers on Wednesday, Putin referred to the pain that Western sanctions have inflicted on the economy but insisted that Russia could tolerate the blow. Trying to justify the war in Ukraine, he claimed that there were concerns that: “In the foreseeable future, it was possible that the pro-Nazi regime in Kyiv could have got its hands on weapons of mass destruction, and its target, of course, would have been Russia.” He said: Western countries wanted to turn Russia into a “weak dependent country; violate its territorial integrity; to dismember Russia in a way that suits them”.

He clarified that he was willing to discuss “the neutral status of Ukraine, its demilitarisation, and its ‘denazification’”.

What does Ukraine want out of the talks?

President Zelenskyy said on Monday that Ukraine wants a “fair peace” with Russia, but his country won’t surrender, or accept ultimatums from Russia. Ukraine has demanded a ceasefire with Russia but it won’t surrender any of its territory to Russia. Ukraine may be willing to forego NATO if there are “security guarantees” from the US and NATO about its safety.

An immediate concern for Ukraine has been the creation of humanitarian corridors to allow the safe evacuation of civilians. Mariupol, for example, is surrounded by Russian forces and has been bombarded with civilians struggling to survive with limited food, water and power. Ukraine has said that has send a convoy with humanitarian supplies to the port city on Tuesday and hopes to evacuate women and children as it returns, according to Reuters. More than 2,500 civilians have been killed in Mariupol since the war started, according to a Ukrainian official cited by Reuters.

The pound is up against the euro more than 1% this month. The BoE is expected to proceed to a second 25-bps interest rate hike on Thursday. For those exchanging the pound against the euro, it will be interesting to see whether the British currency will rise further if the divergence between Bank of England (BoE) and European Central Bank (ECB) monetary policies continues this week too. Sterling is near its highest against the euro, since February 2020, ahead of this Thursday’s BoE and ECB policy decisions. The pound is however set to end the month lower against the dollar, which has strengthened from Fed rate hike bets.

Brexit and Prime Minister’s future

For the British currency, other factors remain into play. The Brexit Freedom Bill passage and UK politics could provide some volatility. In terms of politics, there is optimism in the UK after Liz Truss commented that the Prime Minister’s future is assured. Although Sue Gray’s report is yet to be announced, as it has been delayed due to an ongoing police investigation, Foreign Secretary Liz Truss stated that “The future of the PM is assured.” In a BBC interview, Truss also said: “He’s doing an excellent job on the things that matter -- recovering the economy from Covid, getting Brexit done, getting this country going again.”

While the devolved governments in Wales, Scotland and Northern Ireland have criticised the Brexit Freedom Bill, the Prime Minister has praised it ahead of its official passage. According to Bloomberg: “Legislation building on Britain’s exit from the EU would make it easier to amend or remove statutes that remain on U.K. books, a measure that will help the government strip away regulations costing businesses 1 billion pounds ($1.3 billion), Johnson’s office said in a statement released Monday.”

Any developments relating to Brexit and UK politics will be of interest to those exchanging the British currency against the US dollar. However, markets will now focus on the Bank of England (BOE) and rate hike concerns following positive domestic data.

Bank of England

The Bank of England is expected to raise interest rates on Thursday as concern over inflationary pressures on households is growing. Economists anticipate the central bank to increase its key rate from 0.25% to 0.5%. With rising household costs exacerbated by high energy bills the Bank’s monetary policy committee (MPC) is anticipated to vote unanimously for a rate rise.

Chief UK economist at Goldman Sachs Steffan Ball, said the MPC would probably vote to raise borrowing costs on Thursday, and could raise rates as much as 1.25% by November this year. Ball said: “We now expect the Bank of England to hike in back-to-back meetings through May, in order to demonstrate to markets and businesses that the MPC is serious about the inflation target.”

Thursday’s policy decision is due out at 12:00 and the pound is expected to rise.

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