The BoE also changed its language to downplay the risks of further tightening over the coming months, despite recognising that inflation was likely to overshoot by more than had been forecast back in February. This might not prevent another 25bp hike in May, but does suggest that the policy makers could become a bit more cautious, in my view. The meeting reflects the changes the UK economy might face from the Ukraine crisis and the higher cost of living due to rising inflation.

This week is a major week for UK economic data with February inflation and retail sales, March preliminary Purchasing Managers’ Index (PMI) surveys, and public finances. Upside inflationary pressures from energy price rises are likely to be fairly benign in February given that the surge in petrol prices did not occur until March, but the “flash” PMIs could provide a first insight into the economic impacts of escalating geopolitical tensions, in my opinion. Wednesday’s Spring Statement will likely give an idea of the government’s measures to combat households’ rising cost of living this year.

EUR/USD edged higher above 1.10 last week and is holding around that level at the start of the week. Last week’s Germany’s sentiment index, Zentrum für Europäische Wirtschaftsforschung (ZEW) plunged to -39.3 in March from 54.3 in February, well below economists’ expectation of +5 in a Bloomberg survey. The data showed a deterioration of confidence in Germany’s economic recovery amid concerns around geopolitical tensions. However, European Central Bank’s (ECB) President Lagarde played down stagnation risks by suggesting that they are “not seeing elements of stagnation now” in a conference on Monday morning. The impact of rising inflation on the region’s growth outlook continues to be an important area to monitor, in my view.

A series of ECB speakers (including Guindos, Villeroy and Lane) are due to speak this week and could provide further insight on different policy makers’ views on monetary policy outlook, after the ECB’s policy shifts in recent weeks. On the data front, Euro Area “flash” PMIs will show the early impact of the Ukraine crisis on growth. Friday’s IFO (Information and Forschung, Germany’s institute for economic research) business survey data will also be of interest after the plunge in last week’s March German ZEW survey data.

On Monday morning the USD pared some of last week’s losses amid cautious risk sentiment as market investors remained concerned on geopolitical developments. The Federal Open Market Committee (FOMC) meeting last Wednesday was hawkish and showed that their top priority is controlling inflation. The policy rate was raised by 25bp, and the Summary of Economic Projections signalled six more rate hikes this year. Additionally, Powell suggested that an announcement to begin running down the balance sheet could come as soon as the next meeting. Powell did not commit to a 50bp hike at any meeting, but also didn’t discard the idea. Last Friday some Federal Reserve officials further signalled that the Fed’s worry toward inflation might have evolved into a higher alert level. This is increasing the likelihood of a potential 50bp rate hike over the next few meetings, particularly if inflation expectations keep going up, in my view.

This week is light on the data calendar with new and pending home sales and durable goods as the key data points. The calendar for Fed speakers, on the other hand, is very busy with Bostic, Powell, Williams, Daly, Mester, Bullard, Kashkari, Waller, Evans and Barkin scheduled to speak.

Last week’s central bank meetings showed increasingly diverging central bank stances. The BoE delivered a 25bp hike, but the vote and tone was dovish, as discussed above. The Bank of Japan (BoJ) maintained its easing stance by keeping policy settings unchanged overnight and revising down its economic assessments due to Covid impacts. In contrast, the FOMC was hawkish (discussed above). In emerging markets, the Brazil Central Bank  hiked rates by 100bp, in line with economists’ expectations in a Bloomberg survey.

There will be a plethora of central bank meetings this week. Norges Bank will likely raise rates by another 25bp and lift its rate path on Thursday, supported by high capacity utilisation, tight labour market and building inflationary pressures. In emerging markets, the Hungarian, Mexican and South African central banks will probably hike rates by 50bp, amid rising commodity and energy prices due to the escalating geopolitical conflicts. On the other hand, on Friday Switzerland might hold its policy settings unchanged, given the lower-than-average inflation and building downside growth risks. The Philippines central bank might also stay unchanged as local inflation dynamics suggest easing headline pressures, in my opinion.