Investors await central banks meetings

With the US dollar index moving above the 100 level for the first time since May 2020, the pound fell below the 1.3000 mark for the first time since November 2020, though the Bank of England is also hiking interest rates. Euro prices have also fallen, though Asia saw a temporary recovery after Emmanuel Macron took the lead in the French election, which was greater than expected.

Economic calendar

Inflation levels in China surprised on the high side on Monday. While relatively modest at 1.5% year-on-year, it would seemingly diminish expectations for a policy easing push.

Wall Street has performed surprisingly well despite a massive sell-off in bonds that saw 10-year Treasury yields increase 31 basis points last week to be last at 2.72%.  Big US banks will kick off the first-quarter earnings season this week with JP Morgan, Wells Fargo, Citi, Goldman Sachs and Morgan Stanley all reporting. Analysts expect financial sector earnings to decline from a year ago because revenues for investment banks are falling in the wake of Russia's invasion of Ukraine. Some banks are making provisions to deal with losses associated with the situation in Ukraine.

Central banks meetings

On Wednesday, the Reserve Bank of New Zealand and the Bank of Canada will make policy decisions. In terms of interest rate hikes, there is a more than 90% chance that both central banks will hike interest rates by 50 basis points. In the event that the hikes are smaller, the Canadian and New Zealand dollars could be vulnerable.

Also, the European Central Bank's meeting on Thursday will be dominated by the topic of inflation, where it seems likely that the statement will be hawkish in tone.

It will be an unenviable task for the ECB to balance rising inflation with the pressure on economic growth from the war in Ukraine. Even though the central bank's winddown of asset purchases is widely expected, it is unlikely to signal any further hawkish stance formally.

Meanwhile, with futures suggesting rises of 50 basis points at the Federal Reserve's May and June meetings, markets have begun to price in further rate hikes from the Fed.