Diplomatic hopes keep markets calm, PMIs in focus

Both the dollar and gold were down on Monday morning, with currency markets monitoring the ongoing diplomatic efforts over Ukraine to prevent a Russian invasion. As investors calculated the energy security implications and economic consequences of a Russian invasion, the safe-haven yen stayed just behind a two-week high. A new intraday high for the euro has marked the first positive daily performance in three days so far. Market sentiment improves on the announcement of the Biden-Putin summit, as well as the Blinken-Lavrov meeting. Hawkish ECB rhetoric contrasts with recent Fed speak to support further gains in the pair.

Events of the day

On Monday, the UK and Eurozone will release their PMI data for February, which could suggest a boost to economic activity as governments remove more pandemic era restrictions. The Ifo business climate index for Germany, to be released on Tuesday, will also be closely watched. Positive signs of an economic recovery could encourage central banks to unwind post-pandemic stimulus fast.

The Bank of England is on track to raise rates again in March. European Central Bank policymakers are still debating whether rates will need to rise this year in order to curtail inflation.

Central bank policies

Investors are again paying attention to central banks' policies after the People's Bank of China left its loan prime rates unchanged at 3.7%. The Reserve Bank of New Zealand will hand down its policy decision on Wednesday and the Bank of Korea will hand down its policy decision a day later.

In addition to the Asia Pacific, Andrew Bailey, the governor of the Bank of England (BOE), is scheduled to appear before the Treasury Committee on Wednesday. Several U.S. Federal Reserve policymakers are expected to speak throughout the week, as investors look for hints that a large 50 basis point rate hike could be on the way at the Fed's March 2022 meeting, rather than the 25 basis point rise generally expected.

Similarly, the BOE is widely expected to raise interest rates at its March meeting, providing support to the pound, although the situation in Ukraine may limit gains.