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Financial markets  and EURUSD have edged higher on Monday as the US President Joe Biden and the Russian President Vladimir Putin have agreed meet to pursue discussion over the Ukraine situation, bringing some hope of peace. A diplomatic solution will likely reduce volatility in prices and allow markets to digest the tightening initiative. As for EUR, traders may hold back from pushing the euro too far until details emerge from the ECB’s informal meeting on Thursday 24th. A strong jump above the hard resistance 1.15 level would likely improve sentiment and signal a reversal to the current trend. 

Recently the dollar gauge is losing momentum. While conventional logic suggests rising yields should buoy the greenback, there're signs of waning interest for the dollar. Leveraged funds, that reflect traders' speculative bets on USD is starting to roll over, CFTC data show. Demand for dollar call-options has also plummeted to the lowest in nine months. Additionally, the recent shift in the ECB's rhetoric is also adding pressure on the greenback, with traders pricing in 25 basis point hike as early as September, fueling demand for the euro.

As inflation is running hot in the UK, the Band of England announced raising its key interest rate to 0.50%. However, the surprising news was what that the margin of vote was 5-4, the 4 minority votes wanted a 50bp hike to 0.75%! Additionally, BOE will also begin the process of balance sheet runoff by ceasing to reinvest maturing assets. Very hawkish numbers. Yield on the 2-year Gilts spiked as much as 12bps to 1.138%, and the EURGBP broke its recent support, trading currently around 0.8299.

Europe January consumer prices jumped 5.1% yoy, a record, driven by a spike in energy costs. EUR/USD is climbing higher near the 1.13 level. The move also coincided with a dip lower in the dollar after hints that Fed officials will favor more measured monetary tightening .Euro traders are set for a turbulent central bank meeting today. The ECB President Christine Lagarde is more of the "transitory" camp believing that elevated inflation will pass. As result, she has, so far, ruled out rising interest rates anytime soon.

As the economy recovers, tight job markets and persistent inflation has pushed central banks from many countries to start considering rising interest rates to prevent an inflation spiral. Following the Fed's meeting on Wednesday, markets are expecting now 4 and 5 rate hikes from BoE and the Fed respectively in 2022. However, the longer dated bond, which are used as proxy for growth by market participants, are lagging behind, showcasing investors concern over too much tightening from the central bankers.