Pound Euro (GBP/EUR) Exchange Rate Extends Upside as West Fears a False Flag Attack Imminent
(Updated 16:15, 17/2/22) The Pound Euro (GBP/EUR) exchange rate continued climbing today as things remain tense on the Russia-Ukraine border.
Both Ukraine and Russia are blaming one another for an outburst of violence in eastern Ukraine earlier this morning.
Kyiv and Russian-backed separatists have been locked in conflict but both sides had agreed a ceasefire in recent months. However, the ceasefire was broken today as mortars, grenade launchers and a machine gun were used.
With each side blaming the other for the clash, Western leaders are fearful that Russia may be staging a false flag operation. This involves using a fake attack to justify an invasion.
Russia also expelled the US Deputy Chief of Mission (DCM) – the second most senior diplomat – in Moscow in a move that the US state department described as ‘unprovoked’ and ‘an escalatory step’.
US President Joe Biden believes that Russia will launch an attack in ‘the next several days’.
Such an attack would be damaging to the Eurozone’s economic stability. As a result, the Euro (EUR) has faced significant pressure today.
GBP/EUR is trading just shy of a two-week high of €1.199, up from this morning’s level of €1.196.
Original article continues below:
Pound Euro (GBP/EUR) Exchange Rate Gains as Russia-Ukraine Crisis Weighs on EUR
The Pound Euro (GBP/EUR) exchange rate has risen this morning as clashes in eastern Ukraine reignite fears of a Russian invasion.
Meanwhile, the Pound (GBP) could find its gains capped. A new survey shows that most British businesses believe the UK-EU Brexit trade deal has had negative consequences.
Euro (EUR) Slips amid Clashes in Ukraine
The Euro (EUR) is falling today as tensions flare between Russia and Ukraine.
Last night, Russian-backed rebels in eastern Ukraine accused Ukrainian government forces of attacking their position with mortars, grenade launchers and a machine gun. Such an attack would be in breach of ceasefire agreements between Kyiv and separatists.
In reports published by Russia’s independent news agency Interfax, representatives in the Luhansk People’s Republic – a rebel-held territory in Ukraine – said:
‘Armed forces of Ukraine have rudely violated the ceasefire regime, using heavy weapons, which, according to the Minsk agreements, should be withdrawn’.
Kyiv denies the allegations. Instead, Ukrainian forces say that they themselves were under fire and did not retaliate. A duty press officer of the Ukrainian Joint Forces Operation said:
‘Despite the fact that our positions were fired on with prohibited weapons, including 122mm artillery, Ukrainian troops did not open fire in response’.
The skirmish raises fears of a false flag operation, in which Russia would use falsified reports of a Ukrainian attack to justify an invasion.
This escalation of the Russia-Ukraine crisis is weighing on the Euro, as a Russian invasion would have a significant impact on the Eurozone economy. European banks could lose out on repayments from Russian debtors and energy prices would surge even higher, pushing up inflation.
Pound (GBP) Capped by Downbeat Brexit Survey
Despite GBP/EUR’s gains, Brexit concerns may limit Sterling’s upside today. A survey by the British Chambers of Commerce (BCC) has found that most British exporters believe the EU-UK Trade and Cooperation Agreement (TCA) is bad for business.
Of the businesses surveyed, only 8% of all firms and 12% of exporters agreed that the post-Brexit trade deal is helping them grow their business or increase sales. Meanwhile, 54% of firms and 71% of exporters disagreed.
The survey of more than 1,000 businesses received 59 comments on the advantages of the TCA compared to 320 comments on the disadvantages. Businesses were most critical of rising costs, increased red tape and a drop in demand from the EU.
The BCC has also identified five key issues and put forward solutions on how to improve the Brexit trade deal.
A week earlier, the cross-party Public Accounts Committee (PAC) published a report that Brexit had led to a ‘clear increase in costs, paperwork and border delays’ for UK businesses.
Jacob Rees-Mogg, the Minister for Brexit Opportunities, has disputed the data. He argues that Brexit is ‘already a success’ and that global supply chain disruption is to blame for the drop in trade.
Nevertheless, the survey results could weigh on the Pound today.
Pound Euro Exchange Rate Forecast: Russia-Ukraine Crisis to Worsen?
Developments in the Russia-Ukraine crisis are likely to dominate the Pound Euro exchange rate today. Following last night’s shelling, there’s a chance that relations between Russia and the West could deteriorate further. Any negative headlines could put further pressure on the Euro.