Morning Report

April 26, 2022

“The US dollar rallied to a two-year high and is on track for its best month since January 2015 – buoyed by expectations the Federal Reserve will be required to lift interest rates to battle rising inflation, the dollar index rose by 0.8%.”

Sam Cornford, Partner – Head of Trading

Main Headlines

The US dollar rallied to its highest level since March 2020 on Monday and is on track for its best month since January 2015, buoyed by expectations of the Federal Reserve being required to lift interest rates aggressively to tame inflation. The dollar index, which tracks the US currency against six others including the euro and sterling, rose by as much as 0.8% to a high of 101.86. The index has risen roughly 12% in the past year. The gains come at a time when the Fed is expected to tighten policy more aggressively than other G-10 central banks. The higher interest rates, and higher yields on US government debt, have lured foreign investors into US Treasuries. The value of the dollar rises as investors sell holdings denominated in local currencies in favour of dollar-denominated investments. Bets on ever-tighter Fed policy have continued as inflationary pressures have persisted; Russia’s invasion of Ukraine has lifted commodity prices, and rising coronavirus cases in China have prompted fresh lockdowns that threaten to further disrupt supply chains and the global economy.

The cost-of-living crisis in Britain will have a severe impact on economic growth this year but the Bank of England will still lift interest rates again next week, marking its fourth consecutive meeting of increasing borrowing costs. Inflation hit a 30-year high last month of 7.0% and there are suggestions that it will be higher this quarter, meaning households are facing the biggest cost-of-living squeeze since records began in the 1950s, according to Britain’s budget forecasters. Supply chain disruptions caused by the coronavirus pandemic have been exacerbated by Russia’s invasion of Ukraine and renewed lockdowns in China while energy bills have soared and taxes have risen, putting a big dent in consumer spending power. As such, Prime Minister Johnson is expected to use his weekly cabinet meeting today to tell government departments to explore “innovative ways” to ease pressures on household finances – crucially, without “solely relying” on new public funding.


Sterling is weaker against the dollar and level with the euro this morning. Government borrowing in the last financial year more than halved from the amount borrowed a year earlier when the UK saw major Covid restrictions – from £317.5 billion to £151.8 billion. The government has had to borrow less since pandemic schemes, such as furlough, have come to an end. It also made more income from taxes which has helped cover the gap, with receipts at £619.9 billion for the financial year – an increase of £94.3 billion. All tariffs on goods coming to Britain from Ukraine under an existing free trade deal will be axed to help the Ukrainian economy, the British government announced yesterday. Following a direct request from Ukraine’s President Volodymyr Zelensky, London said tariffs would be reduced to zero and all quotas removed providing a boost for Ukrainian businesses involved in key exports such as barley, honey, tinned tomatoes, and poultry.


The euro is weaker against the dollar and level with sterling this morning. As the European Union (EU) member states remain reluctant to announce an immediate embargo on Russian oil imports, they are contemplating imposing a ceiling on what they would pay for Russian oil as a way to hit Kremlin revenues. However, Germany remains sceptical, noting, “trying to set a price would be difficult, and also in breach of contract.” Russian Foreign Minister Sergei Lavrov asserted in a television interview aired late last night that Russia stands for ruling out the threat of nuclear conflicts, despite high risks at the moment, and wants to reduce all chances of “artificially” elevating those risks. Alphabet unit Google, Meta and other large online platforms will have to do more to tackle illegal content or risk hefty fines under new internet rules agreed between EU countries and lawmakers on the weekend. The new rules ban targeted advertising aimed at children or based on sensitive data such as religion, gender, race, and political opinions.


The dollar is well bid against most major currencies overnight. The board of Twitter has agreed to a $44 billion (£34.5 billion) takeover offer from billionaire Elon Musk. Mr Musk, who made the shock bid less than two weeks ago, said Twitter had “tremendous potential” that he would unlock. He also called for a series of changes, from relaxing its content restrictions, to eradicating fake accounts. Energy Secretary Jennifer Granholm said yesterday that US oil and gas production is rising and will continue to rise to make up for the 1 to 1.5 million barrels of oil per day that has been pulled off the market in the wake of Russia’s invasion of Ukraine. Yesterday, the Biden administration overturned a controversial Trump-era policy that would have opened new swathes of Arctic Alaska to oil development. Critics of the move assert that the decision goes against energy security at a time when Russia is subject to a multitude of sanctions, though the plan had not been expected to immediately boost oil production, if at all.


Stocks stabilized today after China pledged to boost monetary-policy support for the nation’s Covid-hit economy, whose travails have dimmed the outlook for the global recovery. European equities rebounded from a six-week low, with energy and mining firms leading the recovery as commodity prices clawed back Monday’s losses. US equity futures dipped following Monday’s choppy session higher before big-tech earnings. Aside from vowing more assistance, the People’s Bank of China also said it will promote healthy and stable development in financial markets. Treasuries slipped and oil advanced in a sign of steadier investor sentiment. But the risk of an economic downturn from China’s lockdowns, as well as aggressive Federal Reserve policy tightening, continues to hang over markets. The panoply of risks spans the pandemic, supply-chain disruptions, Fed tightening and Russia’s grinding war in Ukraine. The search for portfolio buffers in the US is evident in the highest relative cost of loss-protecting put contracts in two years.

Main Economic Data/Central Banks/Government (All Times CET)

8:00 a.m.: UK March public finances, public sector net borrowing
8:00 a.m.: Switzerland March exports
10:00 a.m.: Poland March unemployment rate
11:00 a.m.: Italy to sell bonds
11:00 a.m.: ECB’s de Cos speaks
11:15 a.m.: Switzerland, Austria to sell bills
12:00 p.m.: Italy to sell linkers
12:40 p.m.: ECB’s de Cos speaks
2:00 p.m.: Hungary rate decision
2:15 p.m.: ECB’s Villeroy speaks
6:30 p.m.: ECB’s de Cos speaks

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