Markets continue to focus on geo-political risks, helping keep the USD supported; on the one hand, Russia and Ukraine will resume talks today but on the other, there is rising pressure to impose more sanctions on Moscow. Concerns about Russian energy supply remain elevated as a result. Slow progress on the Iran nuclear talks is also a background factor for crude oil markets where prices have eased very slightly (-0.5%) so far today. European stocks and US futures are flat to modestly higher at writing while European bonds are firmer, nudging yields back 3-5bps. US bonds are underperforming and US 10Y yields are 1bps or so firmer. SF Fed President Daly said over the weekend that “the case for 50 (bps), barring any negative surprises between now and the next meeting, has grown”. Fed commentary since the last meeting has steadily conditioned expectations for a 1/2 point hike in early May but this is not yet quite fully priced into the curve; we expect aggressive Fed policy tightening to support the USD in the coming weeks, especially against the lower yielding units. Note that the Fed releases the March FOMC minutes Wednesday.
The GBP is more or less flat on the session, with market idling in a narrow range absent any major new impulses over the weekend. Traders had focused on BoE Gov Bailey’s speaking appointment earlier as a potential driver of movement but remarkets centered on crypto. Deputy Governor Cunliffe (neutral/dove) speaks at 10ET and may provide more context around the Bank’s current thinking. We still rather feel markets are pricing in a little too much tightening risk relative to the Bank’s own guidance; repricing the rate outlook will curb GBP upside risks in the coming weeks.
