War, inflation, sanctions dominate markets

In the absence of positive development in Ukraine's talks, the dollar up and the rest of the G7 currencies continue to suffer on Friday in the fog of war and the gloomy worldwide economic outlook. Markets await a new announcement following Friday's EU leaders' summit. At the same time, traders are digesting sky-rocketing US inflation and robust UK GDP growth.

A strong US inflation report drove the dollar to a record five-year high against the yen on Friday, while the euro struggled to hold its earlier gains as hawkish comments from the European Central Bank were offset by economic risks related to the Ukraine crisis.

A 7.9% YoY increase in US consumer inflation in February, the most significant increase in 40 years, put pressure on risk appetite more broadly as investors braced for faster tightening monetary policy.

ECB's surprising plan and 40-year US inflation record

The European central bank (ECB) surprised the market by phasing out its bond-buying program earlier than expected in the third quarter. According to ECB chairwoman Christine Lagarde, the ECB will adjust interest rates gradually after its APP (Asset Purchase Program) ends.

With the US experiencing the fastest inflation rate in four decades, and the European Central Bank (ECB) pushing for more rate hikes, these factors hammered sentiment already battered by the Ukraine conflict.

Events of today

The most anticipated reports in the economic calendar on Friday include the EU leaders' summit and the changes in Canadian unemployment.

Following tensions between Russia and the West, European leaders seek to reduce their dependence on fossil fuels. In addition, as the Ukraine talks on Thursday faded and Russia has continued to advance in Ukraine, the summit may result in a more aggressive stance on Russia. The United States, the European Union, and other allied nations are set to take further action against Russia's economy. In this way, many Russian goods would be subject to tariffs, further harming the country's economy.

Canada's labour market has been improving. Today's report is expected to show a gain of 160,000 jobs in February after 200,000 people lost their jobs in January. This may lower the unemployment rate from 6.5% to 6.2%.

At the beginning of the London market, robust economic growth prompted sterling sellers to take a breather. After falling 0.2% in January, GDP grew 0.8% in February, much better than the 0.2% forecast. Accordingly, the UK economy expanded by 10% in February, exceeding expectations of 9.3%.

Meanwhile, German inflation data came in at the forecast level in February. German consumer inflation more than doubled in February from January, rising from 0.4% to 0.9%.