- GBP/USD riding the risk-on waves on prospects of diplomacy over an invasion of Ukraine.
- Fed and BoE speakers are scheduled for the week ahead.
GBP/USD is higher at the start of the week, penetrating into the 1.36 area after moving up from a low of 1.3583 to test the 1.3620 highs.
Sterling was firming for a third consecutive week on Friday. It was helped by better-than-expected UK Retail Sales numbers, expectations of rate hikes from the Bank of England and now, at the start of the week, risk-on headlines related to Russia/Ukraine.
Sales volumes in the UK in January rose 1.9%, surpassing forecasts of a 1.2% rise, as consumers began to return to more normal buying behaviours after a 4% drop in December 2021. The data helped the pound on the basis that the Bank of England would be expected to hike rates in March following additional data published last week showing inflation rising to a nearly 30-year high. Money markets are expecting a rate hike next month and have priced in as much as 136 bps of rate increases for the remainder of the year.
Meanwhile, for Monday, risk sentiment has improved on news that Biden and Putin have accepted "the principle" of a summit over Ukraine. The caveat to such a meeting is that it will only take place so long that there is no invasion of Ukraine. No date has been confirmed with Putin so far, the White House spokesman said.
Biden stepped up his warnings about Moscow’s plans on the weekend after seeing evidence that an attack on Ukraine was imminent. Satellite images show a new phase of Russian military readiness and the US has intelligence that the Kremlin ordered an invasion prompted the latest Biden warning, officials say. Also, the US is prepared to impose swift and severe consequences if Russia invades, adding that Russia appears to continue preparations for a full-scale assault on Ukraine very soon.
All eyes on central bank speakers
For the week ahead, there will be both BoE and Fed speakers. ''With 6 speakers scheduled, the MPC will have plenty of opportunities to push back on aggressive market pricing ahead of its March meeting,'' analysts at TD Securities explained.
''While markets are betting on a 50bps hike, we think the MPC is more likely to stick to 25bps increments. Wed is TSC, and Thurs/Fri sees 3 MPC members speak at the BoE's "Unwinding QE" conference, which could provide early hints on QT plans.''
Analysts at Westpac have the lineup for Fed speakers as follows:
''Chicago Fed President Evans (dove) and Governor Waller (hawk) will take part in a policy panel concerning the Fed’s new policy strategy. Cleveland Fed President Mester (moderate hawk) and New York Fed President Williams (centrist) will both discuss the economic outlook at different events. Governor Brainard (nominee for Fed Vice Chair) will speak on central bank digital currencies.''
These speakers will be important considering the convergence that is being priced in now to the markets between the central banks and the Fed. This has had an effect on US dollar positioning.
Speculators' net long bets on the US dollar fell in the latest week, according to calculations by Reuters and U.S. Commodity Futures Trading Commission data released on Friday.
''The value of the net long dollar position was $6.76 billion for the week ended Feb. 15, the lowest since August. Last week, speculators' net long position stood at $7.81 billion,'' Reuters reported. ''The dollar which rose 6.3% against a basket of currencies (DXY) in 2021, has struggled to extend its gains this year, as investors fret that much of the good news that had driven the rally in the US currency is already priced in.''
