Since the outbreak of the war in Ukraine, the publication of the PMI for March in the Eurozone is the first important data point for the outlook for the economy. Due to the outbreak of the war, prices for important raw materials such as industrial metals, energy and food have risen sharply. In addition, there is the threat of renewed problems in global supply chains after the war disrupted the land route through Russia and Ukraine for the transport of goods between the EU and China. Renewed lockdowns in China to control an outbreak of Covid-19 pose an additional risk to global supply chains in the short term. Against this backdrop, we expect a significant decline in sentiment in March, especially in the manufacturing sector. Among service providers, sentiment could stabilize at a high level, given the end of Covid related restriction measures in many countries. The outlook for global commodity prices as well as short-term supply issues should ease somewhat in the event of an early cessation of hostilities. This would help reduce the short-term downside risks to the Eurozone economic outlook. However, we see two main risk factors that could pose longer-term risks to the economy and inflation. On one hand, the war, like the pandemic before it, has exposed the fragility of global supply chains. Therefore, the trend toward 'deglobalization' of supply chains to increase regional supply security could be exacerbated or accelerated by the war. However, the trend toward globalization has probably made a not insignificant contribution to the gradual decline in global inflation dynamics since the early 2000s. It is possible that a partial reversal of the trend could lead to higher upward pressures in the future, especially for prices of goods. In addition, Russia is losing access to essential technologies from the US and the EU as a result of the economic sanctions. Due to this loss, Russia's production potential for key raw materials is expected to gradually decline. If Russia's exports of key commodities decline in the long term, this would be a problem for the global economy and could lead to upward pressure on commodity prices until alternatives are found. US key interest rates to rise faster The economic impact of the war in Ukraine has made the outlook for the economy considerably harder to assess. What damage will the high energy and commodity prices do and when will the tension ease? How will the supply shortfalls, whether directly from the war or from the sanctions, affect growth and prices? The impact will certainly also be felt by the US economy. This week, Fed Chairman Powell confirmed that the risks were difficult to assess. At the same time, however, it became clear that the FOMC, the body that decides on monetary policy, sees above all a worsening of the inflation trend. Even before the war, US inflation rates had risen. Overall, this led to a sharp increase in the FOMC members' interest rate forecasts for the next few years compared to December. According to Powell, price pressures will increase for the time being. He said that the inflation peak originally expected for March will be pushed back further. We are significantly raising our forecasts for US policy rates this year, as rate hikes will come sooner than we had expected. We were already at the lower range of possible developments with our interest rate expectations. However, the US data in recent weeks, the outbreak of war in Ukraine and the latest indications from the FOMC have made our original scenario very unlikely. We now expect a 0.25% rate hike at each of the upcoming FOMC meetings later this year, and as much as 0.5% in May. In contrast, we continue to expect relatively little movement in 10Y US Treasury yields. We see good reasons why these yields should remain relatively low, compared with the FOMC members' interest rate forecasts of 2.8% at the end of 2023, for example. We believe that the burdens the US economy will continue to face due to the factors mentioned above (energy and commodity prices, supply bottlenecks, general uncertainty) will lead to a slowdown. The market should already be pricing in these risks accordingly. Furthermore, the market assumes that inflation will eventually be brought under control. The faster rate hikes mean a somewhat slower weakening of the dollar for our EURUSD forecast. Download The Full Week Ahead

Summary United States: Significant Monetary Policy Tightening Ahead In a full week of economic data, Wednesday's FOMC meeting took center stage. FOMC officials lifted the target range for the federal funds rate by 25 bps. Meanwhile, data on retail sales, industrial production and housing underscored a similar backdrop across the economy—price pressure remains hot and supply is still hard to come by. Next week: New Home Sales (Tues), Durable Goods (Wed) International: G10 and EM Central Banks Continue Hiking International central banks were quite active this week. In the G10, the Bank of England (BoE) opted to lift interest rates another 25 bps and take its main policy rate to 0.75%. While the decision to raise rates was largely expected, the details surrounding the decision were a bit of a surprise and were interpreted as relatively dovish. In the emerging markets, the Brazilian Central Bank opted to lift the Selic Rate 100 bps and take the main policy rate to 11.75%. Next week: South Africa CPI (Wed), Eurozone PMIs (Thurs), Central Bank of Mexico (Thurs) Interest Rate Watch: FOMC Sends a Hawkish Signal As was widely expected, the Federal Open Market Committee (FOMC) decided to raise rates by 25 bps at its meeting on March 16. But the marked upward shift in the so-called "dot plot" indicates that most committee members now believe that a more aggressive pace of monetary tightening will be appropriate this year than they did just a few months ago. Topic of the Week: Russia's Invasion of Ukraine Highlights Lagging Domestic Oil Production One of the economic consequences of Russia's invasion of Ukraine has been higher oil prices. Domestic crude oil production in 2021 was roughly 1.0% below the 11.3 million barrels per day averaged in 2020 and 9.0% below the 12.3 million barrels per day average registered in 2019 before the worldwide dropoff in global energy demand. Download the full report

The upcoming week will quieten down a bit after what was a busy time for central banks and geopolitical events. But there’s still plenty of activity ahead as the latest flash PMI readings are due and the Swiss National Bank will keep the monetary policy theme running, not to mention how the war in Ukraine will unfold amid slow progress in the negotiations for a ceasefire.

The Federal Deposit Insurance Corporation in the final 12 CFR Parts 303 and 337 Rules effective April 1 2021 changed the concept of the national interest rate rate cap and the national interest rate. "The FDIC views the "national rate" as  as the average of rates paid by all insured depository institutions and credit unions for which data is available, with rates weighted by each institution’s share of domestic deposits."  "The “national rate cap” is calculated as the higher of: (1) the national rate plus 75 basis points; or (2) 120 percent of the current yield on similar maturity U.S. Treasury obligations plus 75 basis points. The national rate cap for non-maturity deposits is the higher of the national rate plus 75 basis points or the federal funds rate plus 75 basis points." The national rate speculatively is the Money Market interest rate at 0.08 which matches the previous  effective Fed Funds rate before the Fed raised. Add 75 basis points and the money market rate is capped at 0.83. The new effective funds rate should be 0.20 or capped at 0.95. The old savings rate at 0.06 is capped at 0.81 while the new savings rate should be 0.18 and capped at 0.93. Savers for the first time in 15 years contain a shot to save and earn from deposits. Checking accounts and 1 month Certificate of Deposits  at 0.03 are both capped at 0.79 for checking and 0.83 for CD's. The new rate by speculation is 0.15 and capped at 0.89 and 0.90. CD's from 3 month to 60 months or 5 years are factored and pay interest from current 0.06 to 0.28 and capped from 1.01 to 2.69. The Treasury equivalent factors as 0.22 to 1.62. THE CD question is to holding periods for either CD's or Treasury yields in order to earn intertest. The FDIC as regulator to banks instituted the new 51 page rules along with historical background to allow banks competitiveness to less well capitalized institutions and to the fast moving electronic market to move funds within seconds. JP Morgan is restricted to offer higher rates than a less well capitalized institution to drive the institution into bankruptcy. All bank Deposit rates operate under the same rules. Speculation, the Fed at 25 basis points to each raise adheres to the principles to the National Average and National Rate cap. Bullard may vote for a 50 point hike but it won't ever happen at one meeting. We're restricted to 25 point raises from today to eternity or when the Fed had enough. The UK banking system works as closely and competively as the FDIC to interest payouts. As to Commercial Paper rates and most at 270 day holding periods is not addressed yet a spotty record to daily reporting existed over last weeks. The imperative to non Financial Commercial paper to address off shore rates is to use implied rates from Libor while Commercial Paper Financial for US Money markets holds near the effective Fed funds rate. Next week EUR/USD at near 1.1100's is 1/2 way from 1.0900 bottoms to 1.1300's target. A close today in the vicinity of 1.1014 then bodes well for longs next week. We;re long anyway but a more perfect entry is the goal. EUR/NZD from the 1.6500 target reported 2 weeks ago traded to 1.6238 highs from 1.5900 lows. Currently oversold and long for next week. EUR/AUD sits 22 pips below its Sunday open at current 1.4978. EUR/CAD at 1.3957 trades near its Sunday open at 1.3907. Long for next week. USD/JPY and JPY cross pairs USD/JPY and EUR/JPY are driven by shortest term averages from 5 to 20 to 50 day averages. Shortest term averages are the only remaining averages as remainder averages dated to 1999 are deeply overbought. USD/JPY at 119.00's and 120's trade at far extremes to short averages. USD/JPY target remains 115.00's,  114.00's then 113.00's and a short only strategy. Note the 600 number from 119 to 113.00's. To travel off kilter. Note  current longer term targets sit at 500 to 600 pips and this once every 2 year phenonemon exists at present and a fabulous opportunity to bank many pips. The magic numbers for overall currency trading are 2, 3, 4, 5, 6 and rarely 8. Without detail, trust the analysis from deep research to prior past periods over years. Because currency prices work on Futures IMM over 3 months, targets will achieve anywhere from this day to at most 3 months. Normally targets achieve from 1 to 2 months and not normal for 3 months. The overall period to great and easy trades as we are in presently, always hits in the February to May or March to June time frame. And once every 2 years without fail. Again the number 2 for 2...

Positive signals from Russia-Ukraine talks boosted market sentiment this week. Media reports that Ukrainian and Russian negotiators are discussing a 15-point draft peace deal raised early optimism that the two sides could be approaching a diplomatic solution to the ongoing war in Ukraine. In our Research Russia-Ukraine – Updated scenarios and implications for commodity markets, March 9, we argue that the two sides are likely to eventually agree on a ceasefire/truce but that will require some painful concessions from the Ukrainian side. Despite a potential truce, some level of conflict/unrest is likely to remain but on a baseline we do not expect an escalation of the conflict outside Ukraine. In our base case of a frozen conflict in Ukraine, we think the global economy will see weaker growth but escape a recession (see Big Picture – Headwinds to the global economy from Ukraine and Fed tightening, March 17). In a downside scenario, where there is an escalation of the war beyond the borders of Ukraine, the risk of recession in Europe increases significantly. With rising inflation, euro area consumers will see the biggest real income erosion in decades this year, and we revise down our 2022 euro area GDP forecast to 2.5%. The US economy is more insulated from the Ukraine war repercussions, but strong stagflation dynamics will keep the pressure on Fed to tighten financial conditions. Overall, we now expect US GDP growth of 2.8% this year. We have also postponed our expectation of a recovery in China and now look for GDP growth of only 4.7% this year. As widely expected, Fed launched its hiking cycle on Wednesday by raising the Fed funds target range by 25 bps to 0.25-0.50%. Despite signalling six further rate hikes for this year, we still think Fed is behind the curve, and keep our call unchanged, expecting a total of 175bp hikes this year (25bp at each meeting but 50bp in June). We still expect an announcement on QT in May. Risk markets recovered this week on the back of rising optimism around Russia- Ukraine talks. Equity markets gained in Europe and the US, and EUR pared losses against USD breaching 1.10 level. German and US 10y yields increased around 10bp as demand for safe havens took a breather. Commodity prices also backed off with Brent oil briefly visiting below USD 100/barrel and European gas prices hovering around 110€/MWh. Despite optimism around peace talks, we highlight that markets remain highly sensitive to headlines. Also, in the light of ever more aggressive use of force by the Russian army against civilians in Ukraine, we cannot rule out a further step-up of Western sanctions against Russia, and a potential further hit to the global risk sentiment. In the coming week, focus will remain in Ukraine war developments and the peace talks. European leaders will meet for an EU-summit on Thursday-Friday, discussing the economic fallout from the war and possible fiscal support measures. The data calendar is light but we will keep a close eye on global PMIs on Wednesday. Particularly, we expect the renewed disruptions from the war on supply chains to be reflected in a dip in the euro area manufacturing activity. Download The Full Weekly Focus

UK Spring Budget – 23/03 – at a time when the UK is facing a cost-of-living crisis and inflation levels that could well head back to levels last seen in the 1990s it beggars belief that the Chancellor of Exchequer is set to go ahead with a National Insurance tax rise, that will add to the tax burden for both business and consumers next month. While it can certainly be argued that taxes must rise to pay for the costs on the NHS of the Covid crisis, the decision to implement these measures was taken at a time when the economic situation today was expected to be quite different. There is a saying in financial markets that when the facts change, I change my mind, and surely it should be no different when managing the public finances. Pursuing a bad investment strategy in financial markets and then doubling down it would usually result in an even worst outcome, and yet what we have here appears to be the political equivalent. When Chancellor of the Exchequer Rishi Sunak gets up later this week to announce his spring statement, he isn’t expected to resile from the increase in NI rates which are due to start next month. This will mean that inflation levels, which are expected increase further in the coming months, will further squeeze consumer disposable income and slow the UK economy over the course of the rest of the year. Businesses of all sizes have already undergone a tough couple of years, and while the government has gone to great length to support them there appears little likelihood of an immediate reprieve in the short term. The OBR will have to set out its latest inflation and growth forecasts for the UK economy, with the Chancellor having to then sketch out how he plans to navigate his way around the challenges being thrown up by the rise in food, energy, and other related rises in living costs. While Sunak has already outlined some measures to alleviate some of the increase in costs this only covers families and doesn’t cover businesses. Pressure from business to reform business rates is likely to go unanswered, although we might see an extension to the super deduction which is due to end at the end of 2023, with some calls that it ought to be made more inclusive so small businesses can use it. We could also see an announcement of a review of defence spending in light of Russia’s war on Ukraine.   UK CPI (Feb) – 23/03 – having seen the Bank of England raise rates by 0.25% last week this week’s latest inflation numbers are unlikely to offer much encouragement that we won’t see further sharp rises in the cost of living in the coming months. With wages growth still trending below headline CPI we are unlikely to see the gap narrow in the coming months, despite recent above headline inflation pay rises announced by major retailers in the last few months. In January UK CPI rose to a new 30 year high of 5.5%, while RPI rose to 7.8%, and is set to go higher this week with CPI rising to 6%, and RPI set to bust above 8%. Slightly more worrying, for those looking for signs of a top in price pressures, there was little sign of a slowdown in the more forward-looking PPI numbers which continued to rise as output prices came in at their highest levels since 2008 at 9.9%, although input prices slowed to 13.6%, from 13.8%. The modest increase in core prices to 4.4% also showed that underlying inflation is still on the rise, and is likely to rise further. Let’s not forget the Bank of England has already indicated it expects to see headline CPI rise to 7.25% by April, and go even higher later in the year, which suggests that we could see the headline number this week hit 6%, with the very real worry given recent surges in commodity prices that this could head towards 10% by the summer.   UK retail sales (Feb) – 25/03 – UK consumer spending saw a strong rebound in January, after the -0.4% slowdown seen in December. Not only did fuel sales recover, but we also saw a strong rebound in household goods and furniture, with high street sales showing a decent pickup, as 2022 got off to a decent start with a 1.9% rise. The numbers also show that while demand appears to have picked up, the retail sector still has to confront significant challenges in the months ahead as prices rise, and disposable income starts to reduce. This squeeze hasn’t as yet shown up in the latest BRC retail sales numbers, which showed that total sales rose by 6.7% in February, as the complete removal...

It’s tough to be doctrinaire about trade policies in the real world. I’m a champion of free trade, which allows consumers and producers alike to enjoy the greatest choice and flexibility to satisfy their trading objectives. Still, free trade doesn’t necessarily work for everyone in the short run. In dynamic markets, actors come and go and changing relationships foster a lack of permanence. More concretely, once-thought to be good-paying jobs or careers may fall by the wayside as prevailing trading arrangements are disrupted and replaced. We’ve certainly seen these effects over the last several decades as substantial numbers of US manufacturing jobs have been outsourced to foreign competitors. This seeming downside notwithstanding, I don’t think the issue of job losses is necessarily overriding. Job losses from industries migrating across borders can be devastating to households and communities, as well; but these effects can – and should – be mitigated by instituting well-targeted safety net programs intended for affected workers, to facilitate their transitions to other employment opportunities. The alternative of trying to institute protectionist policies such as trading bans or imposing tariffs seems shortsighted and costly to the broader public who would end up bearing higher costs for goods and services. For me, the vulnerability of the free trade orientation stems from its implications relating to war and peace. I used to believe that entangling trading relationships were a force for peace. Given current developments in Ukraine, however, I’ve come to recognize some naïveté about that perspective. It may still hold when trading partners are democracies; but when authoritarian regimes are involved, not so much. In the face of Putin’s unprovoked invasion of Ukraine, the wanton bombing of civilian targets, and the broad-based pain and dislocation that Putin has inflicted on Ukrainians, the idea of using trade sanctions to isolate and punish Putin seems more than justified, but thus far the public face of Putin has shown few signs of retiring his goal of domination; and despite the heroic resistance to the Russian assault on the part of the Ukrainians, the country remains in a precarious predicament. Without question, Putin will suffer under this regime, but so too will those seeking to enforce it. It’s also not at all clear that the coalition currently committed to punishing Russia economically will hold. As time goes by, channels to circumvent these efforts to isolate will likely start to develop. Even with the thus-far coordination of efforts to isolate Russia and the surprisingly stiff resistance being shown by the Ukrainians, the big question still seems to be not whether Ukraine can force a withdrawal of Russian troops, but rather how long Ukraine will be able to hold out. The answer will depend on the level of military assistance that the West is willing to offer, but that assistance is limited by the West’s understandable resistance to the risk of expanding the scope of military activity beyond Ukrainian borders. With or without direct military involvement by US or NATO forces to assist Ukraine, Putin’s persistence in pursuing his goals despite the extraordinary costs Russia has been realizing gives credence to the possibility of his doubling down by using chemical and even nuclear weapons. I had always recognized that a nuclear arsenal would serve as a defensive safeguard, but I hadn’t fully appreciated how that same weaponry could foster greater adventurism by nuclear powers in conflict with nations lacking those same capabilities. That imbalance is tacitly allowing Putin to perpetrate some of the most extensive war crimes in history. From this vantage point, it seems like the most promising outcome of this travesty will come from Putin being deposed by those in his inner circle, closest to the levers of power. Hopefully, diplomatic pressures toward that end are being applied behind closed doors, and those involved won’t take too long to achieve success. Tragically, circumstances require at least some measure of patience. In the meantime, wide-scale suffering will continue – seemingly because of the will of one man.

EUR/USD - 1.1086 Euro's strong rebound from last Monday's fresh 22-month bottom at 1.0807 signals erratic decline from 1.1495 (February) has made a low there and yesterday's break of last Thursday's 1.1120 top to a 12-day peak at 1.1137 in New York on broad-based usd's weakness signals gain to 1.1145/55 is envisaged but 1.1187 should hold. On the downside, only a daily close below Wednesday's 1.1009 trough signals temporary top is made and would risk weakness to 1.0951/55 on next Monday. Data to be released on Friday: New Zealand GDP, Japan nationwide CPI, BOJ interest rate decision, tertiary industry activity. Italy trade balance, EU labour costs, trade balance, Canada retail sales, new housing price index, U.S. leading index change and existing home sales.  

AUD/USD Current Price: 0.7372 Upbeat Australian employment figures boosted demand for the commodity-linked currency. Wall Street changed course after a soft start to the day, providing support to AUD. AUD/USD could extend its advance to 0.7555 once above the 0.7400 threshold. The Australian Dollar was among the best performers on Thursday, advancing against its American rival to 0.7391, holding nearby at the beginning of the Asian session. The commodity-linked currency got boosted by Australian employment data released at the beginning of the day, which resulted much better than anticipated. The country managed to add 121.9K full-time jobs, and while the number of part-time positions was down by 44.5K, the final total resulted at 77.4K, more than doubling the 37K expected. The Unemployment Rate contracted to 4%, while the Participation Rate was up to 66.4%. A substantial recovery in gold prices provided additional support to the aussie, as the bright metal recovered towards $1,950 a troy ounce. Additionally, US indexes managed to shrug off the sour tone of their overseas counterparts and posted modest gains, underpinning AUD/USD. Wall Street trimmed early losses following news that international bondholders received Russian bond coupon payments due March 16th in dollars. Australia will not publish relevant macroeconomic data on Friday. AUD/USD short-term technical outlook The AUD/USD pair is firmly up for a second consecutive day, pressuring the daily high and looking strong enough to extend its gains. The daily chart shows that the pair has accelerated north after breaking above a still bearish 200 SMA, while the 20 SMA gains bullish traction below the longer one. Technical indicators, in the meantime, head firmly higher within positive levels, maintaining the risk skewed to the upside. The 4-hour chart shows that technical indicators reached overbought readings before losing their bullish strength, now holding on to extreme levels. At the same time, the pair is well above all of its moving averages, with the 20 SMA gaining bullish traction between the longer ones, reflecting resurgent buying interest. Support levels: 0.7365 0.7330 0.7290 Resistance levels: 0.7400 0.7440 0.7475 View Live Chart for the AUD/USD

Summary A broad-based increase in almost every category of manufacturing output despite only a slight improvement in supply chain dynamics offers a peek at the potential boom in American manufacturing if the bottlenecks in global supply lines could be cleared. The impact of Russia's invasion of Ukraine, while mostly not reflected in this February report, could worsen supply problems, but our analysis suggests only minimal direct exposure for manufacturing. Manufacturing getting back on it's feet U.S. industrial production increased 0.5% in February (chart) as incremental improvement in supply chains gave businesses (mostly manufacturers) the wherewithal to start chipping away at backlogged orders. Manufacturing output rose 1.2% in February, the largest single-month increase since October. Remarkably, this happened despite a 3.5% drop in motor vehicles and parts production. It was the third straight monthly decline for this industry, which has become synonymous with the supply chain crisis. Other manufacturing categories are seeing some improvement–or were seeing improvement in February (see the section below for potential war impact.) Durable goods industries like primary and fabricated metals as well as nonmetallic mineral products and wood products all posted monthly gains of 2% or higher in the month. Every category within non-durable industries was either fiat or posted gains as well with the largest increase of 3.0% coming from apparel and leather. Yesterday's retail sales report saw again in clothing store sales in February as well. The fact that the return to the office is occurring alongside increased output and spending on clothing and apparel suggests something similar to back-to-school shopping for the grown-ups. After a 10.4% weather-induced surge in January, utility production slowed 2.7% in February. That is not much of a giveback; we could be due for another decline in the current month. Mining output edged up 0.1%. Download The Full Economic Indicators

The Bank of England (BOE) is set to hike rates by another 25 bps on Thursday. BOE in a dilemma amid Ukraine crisis-led uncertainty, growth concerns and raging inflation. Focus on whether BOE will deliver a dovish or hawkish rate hike in March. The Bank of England (BOE) is eyeing a hat-trick, with the third straight 25 basis points (bps) rate hike at its March monetary policy meeting this Thursday. Russia’s invasion of Ukraine has thrown the central bank in a dilemma as it attempts to combat inflationary pressures while maintaining economic growth. BOE caught between a rock and a hard place The BOE is widely expected to raise the benchmark interest rate by 25 bps from 0.50% to 0.75% in its March monetary policy meeting, marking a lift-off for a third consecutive meeting. It’s not a ‘Super Thursday’, as there is no Governor Andrew Bailey’s press conference, leaving markets focussed on the voting composition for a rate hike as well as Bailey and Co.'s statement on the policy outlook. The economic forecasts will be of little relevance as they were prepared before Russia invaded Ukraine. In its February meeting, the British central bank unanimously increased rates by 25 bps to 0.5% – the first back-to-back hikes since 2004 – and hawks were joined this time by December’s lone dove, Silvana Tenreyro. As the rate hike itself was already priced in it did not come as a surprise to markets, however, the vote hike composition did deliver a significant hawkish surprise, with four of the nine voting members, Ramsden, Saunders, Haskel and Mann, all in favor of a 50 bps move in rates.  It remains to be seen if the BOE delivers a hawkish or dovish rate hike this month, as Bailey is put in a fix, courtesy of the Russia-Ukraine war. Heading into the decision, the UK’s annualized inflation stands at the highest level in 30 years at 5.5% and is no longer seen peaking at 7.5% in April, as the Ukraine crisis shot energy prices through the roof, with oil prices up roughly 25% so far this year. We may see inflation pump even higher. Meanwhile, wages jumped 4.8% YoY in January, underscoring concerns that higher inflationary conditions may get entrenched, which could prompt policymakers to act more aggressively now than before. Acting too aggressively, however, could provide the biggest risk to the growth outlook, as warned by policymaker Tenreyro earlier this month. She said that the latest rise in oil prices will increase inflation and dampen UK economic activity. Therefore, all eyes will remain on the BOE’s future rate hike plans, as it attempts to balance inflation and growth concerns. The market pricing is for interest rates to reach 2% by the end of this year. GBP/USD probable scenarios If the BOE follows in the hawkish footsteps of the European Central Bank (ECB) by hinting at probable rate hikes in each of its upcoming meetings, the pound could receive some much-needed respite. GBP/USD could then extend its recovery momentum from the lowest level since November 2020. The ECB, at its last policy meeting, announced accelerated tapering of bond purchases, in an unexpectedly hawkish shift while acknowledging the uncertainty due to the Ukraine crisis. Cable may resume the downtrend should the central bank adopt a flexible approach, leaving options open, dependent on the geopolitical developments and incoming economic data. The pound may also be hit by less hawkish dissent (vs. seen in February) if fewer policymakers now see the need for a 50 bps hike. Although it's also worth noting, GBP/USD’s reaction to the BOE outcome could also be influenced by near-term factors such as the prevalent risk trend going into the meeting, in the wake of the Ukraine saga and the Fed’s policy decision on Wednesday, March 16. 

GBP/USD jumped back above mid-1.3100s on Wednesday amid a broad-based USD weakness. The risk-on mood undermined the safe-haven buck, while the hawkish Fed failed to impress bulls. Odds of a 50-bps BoE rate hike benefitted sterling and remained supportive of the movement. The GBP/USD pair built on the previous day's modest bounce from the 1.3000 psychological mark, or the lowest level since November 2020 and gained strong follow-through traction on Wednesday. The momentum pushed spot prices back above mid-1.3100s and was sponsored by a broad-based US dollar weakness. Signs of progress in the Russia-Ukraine ceasefire talks remained supportive of the optimistic mood in the markets. In fact, Russian Foreign Minister Sergey Lavrov said that there were hopes for compromises and some formulations of agreements with Ukraine are close to being agreed. Apart from this, Chinese officials promised to support economic growth and capital markets, which further boosted investors' confidence and triggered a risk-on rally. This, in turn, drove flows away from traditional safe-haven assets and weighed on the greenback. On the economic data front, the US Retail Sales showed a plunge in consumer spending and decelerated sharply from the previous month's surge of 4.9% to record a modest 0.3% growth in February. Adding to this, sales excluding autos also came in weaker than anticipated and increased by 0.2% last month, down from the 4.4% jump recorded in January (revised higher from 3.3% reported previously). The data did little to provide any respite to the USD as traders preferred to wait for the outcome of a two-day FOMC meeting. The greenback did get a minor lift after the Fed announced its policy decision and hiked its target fund rate by 25 bps for the first time since 2018. The Fed also hinted at a more aggressive policy response to combat stubbornly high inflation and hinted that it could raise rates at all six remaining meetings in 2022. In the post-meeting press conference, Fed Chair Jerome Powell emphasised that the economy was strong enough to withstand tighter monetary policy. Powell added that the US central bank could start shrinking its near $9 trillion balance sheet as soon as the next meeting in May. The initial market reaction, however, turned out to be short-lived as the hawkish tilt was more or less in line with market expectations. This was evident from the emergence of fresh selling around the USD. Meanwhile, the pair finally settled near the top end of its daily trading range and was further supported by expectations of a more hawkish Bank of England. In fact, the markets have been pricing in the possibility of a 50 bps rate hike at the BoE meeting on Thursday, which was seen as another factor that acted as a tailwind for the British pound. Nevertheless, the pair, for now, seems to have entered a consolidation phase as investors seemed reluctant to place aggressive bets heading into the key central bank event risk. Apart from this, trades on Thursday will take cues from the US economic docket, featuring the release of the Philly Fed Manufacturing Index, the usual Weekly Initial Jobless Claims and Industrial Production data. This, along with fresh developments surrounding the Russia-Ukraine saga, will influence the USD price dynamics and infuse some volatility around the pair. Technical outlook From a technical perspective, the attempted recovery from the YTD low paused near the 1.3150-1.3160 support breakpoint, turned resistance. The said area coincides with the 23.6% Fibonacci retracement level of the 1.3643-1.3001 downfall, which is followed by the 1.3200 round-figure mark. Some follow-through buying has the potential to lift the pair towards the 38.2% Fibo. level, around the 1.3245 region. The momentum could further get extended towards reclaiming the 1.3300 mark en-route the 50% Fibo. level, around the 1.3320-1.3325 zone (50% Fibo. level). On the flip side, any meaningful pullback now seems to find decent support near the 1.3100 round figure, which if broken will set the stage for the resumption of the previous bearish trajectory. The pair might then turn vulnerable to slide back to challenge the 1.3000 mark. A convincing break below the latter will be seen as a fresh trigger for bearish traders and accelerate the fall towards the 1.2950 area before the pair eventually drops to the 1.2900 mark. The next relevant support is pegged near 1.2855 ahead of the 1.2820 region.