The informal meeting of European leaders began on 10 March 2022 and will continue today (11 March 2022).
This time the meeting is held in Versailles and is attended by the heads of state and government of the European Union.
The topic of the meeting is Russia's military aggression against Ukraine and its consequences.
The EU leaders condemned the Russian military invasion of Ukraine, which constitutes a flagrant violation of international law and threatens European security, while praising the courage of the Ukrainian people in defending their homeland.
EU leaders continue to discuss how to strengthen European sovereignty and reduce dependence on Russia.
In this context, the following important topics are also discussed
The day before the EU leaders' meeting (9 March 2022), the EU Council adopted further measures, which are also directed at Belarus, which is participating in the invasion of Ukraine.
Measures taken include
More on EU reactions to the Russian invasion
https://www.consilium.europa.eu/cs/policies/eu-response-ukraine-invasion/
The European Central Bank left its current key rates unchanged at the meeting. Practically nothing else could be expected.
As we can see in the chart, the ECB has not raised rates since 2016 and they are currently still at zero.
However, the European Central Bank surprised the markets by trying to end the stimulus earlier than planned!
The statement said that the ECB would end its bond-buying programme in the third quarter if the economy allowed. But the ECB also added that it was prepared to reconsider that decision if the outlook changed.
A couple of minor changes accompany the announcement that the European Central Bank is slowly and surely moving away from the rhetoric that key rates could be lower than they currently are.
That's not surprising. No one would have expected a rate cut below 0 % to happen yet.
The surprise move comes amid growing fears that the eurozone economy could soon experience stagflation. Consumer prices in the 19 countries that use the euro have climbed to record highs for four consecutive months, most recently reaching 5.8 % in February.
President of the European Central Bank - Christine Lagarde mentioned at her press conference that an increase in key rates could come after the end of quantitative easing (QE).
The prospect of a rate hike is certainly good news for the bulls. However, Lagarde later warned that inflation could be much higher in the near future and the mood on the euro became rather bearish.
The euro is still under pressure after Wednesday's strengthening as all diplomatic efforts in the negotiations between Russia and Ukraine are almost fruitless.
Keep watching our newsto keep you in the loop!
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We bring you our regular Monday dose of summaries of the most interesting economic events that have had an impact on the currencies we trade in the past trading week!
ECB Executive Board member Fabio Panetta kicked off the week with an online seminar focused on inflation in the euro area.
Panetta mentioned that it would not be wise to commit to future policy actions in advance. The role of the ECB is clear: we will take all necessary measures and use all our tools to strengthen confidence and stabilise financial markets. This is the duty of a central bank in times of need.
Panetta's full speech can be found here:
https://www.ecb.europa.eu/press/key/date/2022/html/ecb.sp220228~2ce9f09429.en.html
In the second half of the week, we saw new economic data regarding the Consumer Price Index (CPI) and the change in unemployment.
The year-on-year change in the euro area Consumer Price Index climbed to a current value of 5.8 %, compared with the previous value of 5.1 %. This implies a bullish signal for the euro.
Inflation in the eurozone is rising to new highs, and this only adds to the pressure on the ECB to deliver a firmer message at next week's meeting.
Thursday's data on the change in the unemployment rate was also favourable for the euro (current: 6.8 %, previous: 7.0 %). The unemployment rate is falling again and this only confirms the further improvement in labour market conditions.
On the same day, the ECB also issued its expected monetary policy statement, followed by a press conference.
The Governing Council expects the ECB's key interest rates to remain at current or lower levels until inflation reaches 2 %.
The full statement can be found here:
https://www.ecb.europa.eu/press/pr/date/2022/html/ecb.mp220203~90fbe94662.en.html
The US dollar also had a relatively rich week for fundamentals.
At the beginning of the week, the latest Purchasing Managers' Index numbers came in, which were slightly more positive than expected (current: 58.6, previous: 57.6).
Chairman of the Federal Reserve - Jerome Powell mentioned in testimony before the House Financial Markets Committee on Thursday that The Fed must step back from highly stimulative monetary policy.
Rising mortgage rates are likely to start cooling demand for housing, and housing is a significant component of inflation. Powell also mentioned that the U.S. economy is very strong, but the labor market is extremely tight.
The speech suggests that the Fed could raise rates by 25 basis points, but would raise them by 50 basis points if necessary.
Record of the output:
The second half of the week brought a number of data regarding the change in the US Purchasing Managers' Index (PMI), which came out positive for the USD:
Faster production growth was supported by an increase in new sales. A solid increase in demand from foreign clients also contributed to total new orders.
Chris Williamson's chief business economist, IHS said service-sector companies reported a strong rebound in business activity during February as measures to contain the virus were eased to their weakest level since November. The data show that Omicron had only a modest and short-term impact on the economy.
On the other hand... The conflict in Ukraine, however, is leading to further upward movements in energy and broader commodity prices, which will further add to US inflationary pressures
The end of the week was also enriched by data from the US labour market. The unemployment rate fell by 3.8 % in February (previous 4 %), confirming the downward trend. However, the US labour market remains tight.
The Canadian dollar was the driver throughout last week, with interesting economic results coming in.
At the beginning of the week we were waiting for the result of the month-on-month GDP, which was a bit worse than expected (currently 0 %, previous: 0.6 %).
However, the markets were waiting for Wednesday's Bank of Canada (BOC) statement regarding the interest rate change.
Bank of Canada raised rates by 25 basis points to 0.50 %as expected and continues in the reinvestment phase. Furthermore, rates are expected to continue to rise at the next meetings!
As in other countries, Russia's invasion of Ukraine remains a major source of uncertainty. As a result, financial market volatility has increased.
BOC Governor - Tiff Macklem told the conference that Russia's invasion of Ukraine will cause further supply disruptions and the invasion will hit economic activity.
The full report can be found here:
https://www.bankofcanada.ca/2022/03/fad-press-release-2022-03-02/
Europe is still facing a war in Ukraine that has no end in sight. Neither are the negotiations to end this war.
As a result, many European currencies have become risky for the markets.
This week, the European Central Bank (ECB) will decide on a change in the interest rate, which has been at 0 % since 2016.
The ongoing war in Ukraine will be an integral part of the high volatility in the markets.
Keep an eye on our other reports to stay up to date!
Sources
The Russian currency is currently experiencing a truly "devastating" period beyond memory.
The Russian ruble (RUB) was hit hard by the sanctions imposed on Russia by the West over the weekend.
The reason for the adoption of the toughest sanctions on Russia to date is the ongoing and escalating situation in Ukraine.
List of sanctions
In addition to the above-mentioned toughest sanctions, the US, the UK and the EU have adopted a number of smaller ones, such as the closure of EU airspace to Russian airlines.
Although the current sanctions will have a very negative economic impact on Russia, and denying access to the Russian Central Bank's foreign exchange reserves could bring about a total collapse of the ruble, the Russian people in particular will be significantly affected.
Russia sought to avoid a financial meltdown on Monday as Russian President Vladimir Putin held crisis talks with his top economic advisers after the ruble plunged to a record low against the US dollar.
The ruble fell by almost 30 % as a result of the weekend sanctions
In response to the currency depreciation, the Russian central bank decided to raise the key rate to 20 % to avert the risks of ruble depreciation.
The increase in the base rate from 9.5 % to 20 % is the most in almost twenty years. According to the central bank, the rate hike is designed to offset the increased risk of ruble depreciation and inflation. Further, the central bank and the finance ministry have ordered companies to sell 80 % of their earnings in foreign currency.
Forex brokers have suspended ruble trading!
During the past week, many brokers suspended trading of currency pairs with the ruble. The reason was the escalating situation, due to which the liquidity of the Russian currency was falling sharply. This was alarming news for traders of "exotics" and the system close only (traders could only close positions held on currency pairs with the ruble) did not add much to the situation.
Of course, we are currently in very difficult times, which are not only having an impact on the currency markets. Especially on the European ones.
It will certainly depend on how far this conflict goes.
However, it is certain that the steps taken so far from all sides will have a big impact on the Russian economy.
Rising interest rates have made loans and mortgages more expensive, which will slow down investment.
The Russian central bank also announced that it will release 733 billion rubles from local banks' reserves by releasing the capital buffer created on unsecured consumer loans and mortgages.
Unfortunately, ordinary Russians will mainly feel inflation, which is reaching dizzying heights and threatens hyperinflation.
Thus, it cannot be said that the Russian currency has an optimistic future in the near future.
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Follow our regular summary of the most interesting economic events!
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We bring you another regular recap of the most interesting events from last week that affected our trading in the currency markets!
The beginning of the last trading week was in a rather classic trading spirit. However, that changed on Thursday when the Russian Federation attacked Ukraine at 4am CET. Panic and fear of what was going to happen took over the markets.
What impact has this had on currencies?
Read below.
Right from the start of the week, the first data came from the euro area, mainly concerning the change in the Purchasing Managers' Indices (PMI). These came out broadly positive and became a bullish signal for the euro, as higher readings are considered positive for the currency.
Manufacturing PMI - current: 58.4/previous: 58.7
Composite PMI - current: 55.8/previous: 52.3
Services PMI - current: 55.8/previous: 51.1
In the middle of the week, data were also released on the change in the Consumer Price Index (CPI), which measures the price of goods and services from the consumer's perspective and is thus becoming one of the key ways of measuring purchasing trends and inflation. The current number came out unchanged (5.1 %) and has become rather neutral for the currency.
The US currency has had a somewhat busier week. Following Monday's American holiday, dubbed "Presidents Day", which Americans celebrate every third Monday in February, new economic data came in, again relating to the Purchasing Managers' Index (PMI). As with both of the aforementioned currencies, this data came in more positive than expected for the US Dollar.
Manufacturing PMI - current: 57.5/previous: 55.5
Composite PMI - current: 56.0/previous: 51.1
Services PMI - current: 56.7/previous: 51.2
The second half of the week then brought new numbers regarding US quarter-on-quarter GDP, which were slightly stronger than the previous one (current: 7.0 %, previous: 4.9 %).
At the end of the week, the US Fed published its monetary policy report.
The Fed noted that it is firmly committed to achieving the monetary policy target given to it by Congress. However, the economy's path going forward will depend on the course of the virus and related measures to limit its spread.
Read the full report here:
https://www.federalreserve.gov/newsevents/testimony/powell20210223a.htm
More varied data came for the New Zealand currency in the second half of the week, which focused mainly on the change in New Zealand interest rates and retail sales numbers.
The Reserve Bank of New Zealand (RBNZ) raised its cash rate for the third consecutive time by 25 basis points (current rate: 1 %, previous rate: 0.75 %) as expected. The more hawkish commentary, which was a surprise, also certainly helped to strengthen the New Zealand dollar.
The RBNZ says further tightening is needed and RBNZ Governor Adrian Orr mentioned at his press conference that a further 50 basis point rate hike cannot be ruled out in the future.
That was enough hawkish commentary to cause the NZD to strengthen further.
The full statement can be found here:
https://www.rbnz.govt.nz/monetary-policy/monetary-policy-statement/mps-february-2022
In the second half of the week, data regarding New Zealand retail sales were released, which positively surprised and gave the New Zealand currency further impulses to strengthen (current: 8.6 %, previous: -8.1 %).
24 February - a day that made history!
On Thursday, February 24, 2022, the world and financial markets woke up to a new morning. A relatively classic week turned into hell and uncertainty for everyone.
The day after the Russian national holiday, named "Defender of the Fatherland Day", at 4 a.m. CET, Russian Federation troops attacked Ukraine.
This day will go down in history, as a war in Europe, in modern history.
This dramatic event did not only leave Europe, which watched helplessly at first, cold, but also gave unexpected volatility to the financial and currency markets, which experienced a big shock.
A number of European currencies (PLN, HUF, CZK) experienced a proper depreciation as a result of the big shock and uncertainty.
However, there were also currencies that began to strengthen in response to the situation. This was especially true for the Japanese yen (JPY) and gold. These instruments are usually considered to be the so-called "safe haven" in times of uncertainty.
Earlier this week, GDP numbers from Australia and Canada are due. The markets will also be waiting for Tuesday and Wednesday's interest rate announcements coming from Australia and Canada.
However, it is necessary to be on guard, because beyond these classic economic data, the whole world and the markets will be watching how the escalating situation around the war in Ukraine will develop.
Sources
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