Some signs of stabilisation amid fallout from the war

The war in Ukraine continues to dominate both the news headlines and financial markets. While market conditions have remained very volatile, this week has seen a degree of stabilisation of risk sentiment in the absence of major new escalations. As a result, the US dollar’s performance has been mixed and some of the currencies worst hit since the Russian invasion have recovered a bit of ground. But that rebound looks precarious, in our view. News about the situation in Ukraine and the economic fallout from the war and associated sanctions will no doubt continue to be a key driver in markets next week. But the FOMC’s much-anticipated policy announcement on Wednesday will probably take centre stage, at least briefly. We expect a 25bp hike and continued commitment to an aggressive tightening cycle, which may reignite the dollar rally.