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The Ukrainian crisis is getting worse, damping sentiment and leading to a surge in commodity prices. Investors are concerned about the rising stagflation risks as a result, which hurts big exporters like Europe and Japan. The euro is underperforming the dollar by more than 7% since the start of the year. But is the move over? To many not yet. 60% of respondents to a Bloomberg survey believe the could fall further, expecting EURUSD to bottom near the 1.00 level. 

European Central Bank Governing Council member Francois Villeroy de Galhau said the conditions are met for interest rates to be raised back above zero by the end of this year if the euro-zone economy doesn’t suffer another setback. Money markets are pricing in a 25-point increase in July and raised bets on the pace of tightening beyond that, seeing 95 basis points by year-end. German two-year bond yields hit 0.35% following Villeroy's comments and the euro jumped against the dollar.

The BoE hiked rates to 1%, their highest level in more than a decade, but sounded less hawkish than expected. While 3 out of 9 policymakers voted for a 50 bps hike, six voted for 25 bps, and among whom, two saw more hikes as inappropriate. Officials sounded concerned about the pace of growth, expecting the economy to grow by only 1% in Q4, shrink by 0.25% in 2023, and stagnate for the years ahead, limiting BoE's ability to raise interest rates, (maybe) even if inflation stays high. GBPUSD plummeted following the announcement, losing more than 1.3% 

The US central bank’s policy-setting Federal Open Market Committee on Wednesday voted unanimously to increase the benchmark rate by 50 bps in an attempt to avoid an overheat in the economy. The dollar which reached a multi-year high against major currencies on the back of very aggressive tightening, dropped yesterday after Fed's Powell downplayed the likelihood of a 75 point rate hike, taking away major support for the dollar. A weakness in the dollar was a big boost for the euro, taking it 100 pips higher.

Markets and investors will be anxiously waiting for Fed's rate hike decision on Wednesday as any change in rhetoric could push traders to reprice the pace of future hikes. King dollar continued its relentless march higher. The dollar gauge had its biggest jump in years, hitting 104 in April on the back of aggressive tightening. However, this morning, the greenback is trading mixed, having pulled back from its 2017 resistance level last Friday. To break above this level, the Fed would likely need to keep its policy unchanged, otherwise, we might have seen the peak for the greenback (for this cycle at least).