Forex News

TD Securities expects Norges Bank to keep its policy rate unchanged at 4.00%, noting stubbornly sticky inflation and risks of re-acceleration after the Middle East crisis and energy price shock. The bank anticipates a cautious statement that stresses elevated global uncertainty and less-committal projections for 1–2 rate cuts this year, dependent on conflict duration.

Policy on hold with risks monitored

"We expect Norges Bank to keep policy rate on hold at 4.00%."

"Inflation remains stubbornly sticky at 2.8% y/y on headline measure and is now at risk of re-acceleration following the onset of the Middle East crisis and energy price shock."

"The statement will likely mention the elevated global uncertainty, and even though restrictive monetary policy is still needed, the balance of risks will need to be monitored before the next step in policy rate is decided."

"Projections will also likely mirror the uncertainty and be less committal to a forecast of 1-2 rate cuts for this year, instead outlining dependencies on conflict duration."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

Brown Brothers Harriman’s (BBH) Elias Haddad highlights that AUD/USD is trading near the lower end of its recent 0.6900–0.7200 range. February inflation was slightly softer than expected, but Haddad expects Australian price pressures to accelerate as higher energy costs feed through. With Q1 CPI due April 29, markets price a 65% chance of a 25 bps RBA hike to 4.35% on May 5.

Energy-driven CPI keeps RBA on alert

"AUD/USD is down near the lower-end of a two-month 0.6900-0.7200 range. Australia inflation was marginally lower than anticipated in February but is poised to quicken in the months ahead due to higher energy prices."

"In February, headline CPI dipped 0.1pts to 3.7% y/y (consensus 3.8%) while the trimmed mean CPI printed at 3.3% y/y (consensus: 3.4%) for a third consecutive month."

"The monthly CPI is Australia’s primary measure of inflation, but the RBA continues to focus on measures of underlying inflation from the quarterly CPI."

"Indeed, the RBA warned last week that “inflation is likely to remain above target for some time and that the risks have tilted further to the upside, including to inflation expectations.” The RBA also pointed out that “Developments in the Middle East remain highly uncertain, but under a wide range of possible scenarios could add to global and domestic inflation.”"

"Australia Q1 CPI data is due April 29, just ahead of the RBA May 5 policy rate decision where a 25bps hike to 4.35% is 65% priced-in."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

ABN AMRO economists revise their Eurozone outlook after the Iran-related energy shock, expecting weaker growth but notably higher inflation. They now see the European Central Bank (ECB) hiking twice in Q2, front‑loading tightening to prevent second‑round effects. Inflation is projected to move well above 2% and stay close to target in 2027, limiting scope for aggressive easing.

ECB reacts to renewed energy shock

"We have made significant downgrades to our growth forecasts due to the energy shock, reflecting the combination of weaker household and business confidence and higher near-term interest rates, but much more significant upgrades to our inflation outlook"

"Inflation is now expected shoot well above the ECB’s 2% target already from March, and to peak above 3% over the coming months as higher energy prices continue to pass through. An additional source of upward pressure is likely to come from higher food prices, driven by higher fertiliser prices, and higher energy-intensive goods prices."

"In response to this, we expect the ECB to raise rates already at the April and June Governing Council meetings, taking the deposit rate to 2.50%, in order to pre-empt any de-anchoring of inflation expectations. We have more conviction in the April hike than the June hike, given the ongoing uncertainty of the conflict."

"Still, by early 2027 we expect the ECB to be confident enough in the inflation outlook to gradually bring rates back to its estimate of a neutral policy setting. We expect one rate cut each in Q1 and Q2 2027, bringing the deposit rate back to 2%."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

ING’s James Smith outlines scenarios for UK inflation, with current energy prices implying a brief 4% peak in autumn and ING’s base case of easing disruption pointing to a 3.5% peak in September. He notes inflation should fall near term, with Ofgem’s July cap change key, and sees 2025 as the better guide to economic response.

Energy paths drive inflation projections

"In terms of timing, pretty much whatever happens, inflation is likely to fall back in the very short term. The Ofgem household energy price cap won’t be updated again until July, which is the earliest point we’ll see the true impact of higher natural gas prices (and the impact on electricity costs). Current wholesale prices are consistent with roughly a 25% increase in energy bills in July."

"Before then, we expect headline CPI to drop to 2.3% in April from 3% in February, as a whole raft of changes made at the start of the last financial year drop out of the annual comparison. Notably, this April’s rise in water/sewerage bills is much less dramatic. Services inflation should drop by upwards of one percentage point, from 4.3% last month."

"At current energy prices – oil at 100 USD/bbl and TTF natural gas at 50-55 EUR/MWh – UK inflation would likely peak briefly at 4% in the autumn. Alternatively, under ING’s energy base case, where disruption starts to ease through 2Q and energy prices begin to gradually fall back, we’d expect a peak of 3.5% in September."

"For context, that is a percentage-point higher than we had anticipated before the war began. That is not a game-changer for a central bank that was otherwise ready to cut rates at the March meeting, particularly when set against the wider context of a fragile jobs market."

"We think 2025, not 2022, is the playbook for how the economy is likely to respond to the current crisis."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

Commerzbank’s Chief Economist Dr. Jörg Krämer warns that the sharp March drop in the German Ifo Business Climate Index reflects rising war-related risks rather than current damage. He notes that German growth and Euro area growth could be cut by 0.4 percentage points in 2026 if the Middle East conflict and Strait of Hormuz closure persist, undermining hopes for an upswing.

Ifo slump flags mounting growth risks

"The Ifo Business Climate Index fell sharply in March, from 88.4 to 86.4. The sharp decline was in line with expectations (consensus: 86.3). While companies' assessment of the current business situation is unchanged (86.7 after 86.7), expectations for the coming six months plummeted (from 90.2 to 86.0). All major sectors were affected by the decline in business sentiment."

"The unchanged current business situation indicates that companies are not yet suffering from the war in the Middle East in March. However, the slump in Ifo business expectations reflects that companies fear significant negative consequences for the future."

"If the war and the blockade of the Strait of Hormuz were to continue for another month or two, the economic damage signaled by today’s slump in the Ifo business expectations would materialize."

"According to our model estimates, this could reduce economic growth in the euro area and in Germany by around 0.4 percentage points this year. "

"The Ifo Business Climate Index can only be ignored if one expects the war to end in a few days and to have no major economic consequences. In this optimistic scenario, the Ifo Business Climate Index would recover in April."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

Bank of England Monetary Policy Committee member Megan Greene said on Wednesday that if their inflation forecasts are right, there is a risk inflation expectations will rise, per Reuters.

Key takeaways

"Lots of reasons why situation now is different to 2022-23."

"Rates are higher, more slack in the economy compared with 2022-23."

"Trade-off for monetary policy could be bigger this time with greater downside risks for the economy."

"Workers and companies might be faster to respond to inflation effects this time."

"Just because household inflation expectations rose, does not necessarily mean we will get second round effects but could signal higher risk."

"I was not tempted to vote for a rate hike last week."

"Financial conditions have tightened, will have implications for the economy."

Citing informed sources on the matter, Iran's Fars news agency reported on Wednesday that Tehran doesn't see truce and talks as viable in current conditions, despite the United States' increased efforts to establish a ceasefire and begin direct negotiations.

Market reaction

Crude oil prices edged slightly higher with the immediate reaction to this headline and the barrel of West Texas Intermediate was last seen trading marginally higer on the day above $88.

Meanwhile, the US Dollar (USD) Index stays in positive territory above 99.30 in the early American session.

Brown Brothers Harriman’s (BBH) Elias Haddad notes GBP/USD is challenging resistance at its 200-day moving average near 1.3434 as UK inflation remains well above the Bank of England's (BoE) 2% target. While markets now price about 60 bps of hikes over 12 months, Haddad argues BoE tightening expectations are still excessive given projected economic slack and a negative output gap capping long-term gilt yields.

Market pricing seen too aggressive on BoE

"GBP/USD is testing resistance at its 200-day moving average (1.3434). UK inflation remained sticky well above the BoE’s 2% target in February, leaving the bank with little room to look through the energy shock."

"Headline CPI printed at 3% y/y for a second straight month, which was in line with consensus and BoE projection. Core CPI unexpectedly rose 0.1pts to 3.2% y/y (consensus: 3.1%, BoE projection: 3.0%) and services CPI dipped less than anticipated to 4.3% y/y (prior: 4.4%, consensus: 4.2%, BoE projection: 4.1%)."

"The BoE stressed last week that a larger or more protracted energy shock, would require a more restrictive policy stance. Conversely, a short-lived shock or greater economic slack would tilt policy back toward easing."

"The UK swaps curve implies 60bps of hikes in the next 12 months, down from 100bps of hikes priced-in last week. BoE rate hike bets are still too rich in our view given excess slack in the economy."

"The BoE estimates a negative output gap of -1% of GDP in 2026, which puts a natural cap on runaway long-term gilt yields."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)