The euro finished the week at the bottom of the G10 rankings on concerns that the war in Ukraine will not stop any time soon, as well as jitters about the French presidential election.
The carnage in the US bond market continues, with 10-year Treasury yields up an astounding 30 basis points on the week, and the dollar reacted in an expected way by topping every major currency in the world, save a handful of volatile EM ones. Ruble volatility continues and the currency is now higher than before Russia launched its invasion, but it is extremely illiquid and market quotations increasingly meaningless. The Chinese yuan is proving a rock of stability amid currency market uncertainty, with the currency edging higher on a trade-weighted basis in spite of the Chinese economic slowdown and Draconian COVID lockdowns.
This week’s ECB meeting is shaping up to be a critical one. The conflict between hawks and doves we had predicted for some time has erupted, as the minutes from the previous meeting make clear, and we expect communications from the central bank on Thursday to reflect that, after some really ugly inflation readings. March inflation data will also be released out of the US (Tuesday) and the UK (Wednesday). It will be an unusually busy week for the pound, as we will also get the February employment report on Tuesday.
The Czech koruna ended last week somewhat lower against the euro. Sentiment towards Europe wasn’t particularly good and soaring US long-term yields might have further added to the strain. Conversely, an increase in rate-hike expectations in the second half of the week seems to have supported the koruna.
March inflation data released today showed an increase in price growth to 12.7% from 11.1% a month before. The print came in higher than expected by the consensus (12.4%) and showed the strongest price increase since May 1998. Inflation momentum was even stronger than suggested by the headline, with prices rising by 1.7% on a monthly basis. Although significant price increases in March are widespread in the region in the context of a recent energy shock due to war in Ukraine, the data may put additional pressure on the CNB to raise rates further. The market seems to agree, with the pricing of hikes increasing after the inflation release.
The country’s economic calendar is quite light in the next few days, hence we’ll focus primarily on outside news