(Updated 16:44 23/02/22)
The Pound US Dollar exchange rate (GBP/USD) has continued to dip over the course of the day. The announcement of further sanctions against Russia by the EU has likely harmed risk appetite, causing investors to flock to safe-haven currencies.
At time of writing the GBP/USD exchange rate is at around $1.3549, around -0.3% down from this morning’s opening figures.
Pound US Dollar (GBP/USD) Exchange Rate Rangebound as Ukraine Conflict Weighs on Pair
The Pound US Dollar (GBP/USD) exchange rate traded within a narrow range today. Lighter than expected sanctions imposed on Russia over their military activity in Ukraine saw a return of risk appetite. Long-term expectations of further hostilities weighed on the currency pair however.
At time of writing the GBP/USD exchange rate is at around $1.3606, virtually unchanged from this morning’s figures.
US Dollar (USD) Drops as Risk Appetite Returns
The US Dollar (USD) has fallen against its rivals today as risk appetite slowly returns to the markets. Losses for the safe-haven ‘Greenback’ could be limited by the developing situation at the Russia-Ukraine border however.
Following Russia’s deployment of troops into Russian-backed Ukrainian provinces on Tuesday, multiple countries moved to impose sanctions on Russian finances. These sanctions were weaker than expected however and led investors to move away from safer currencies such as USD.
Any further losses for the US Dollar today could be limited by an acceleration in business activity in February. Activity in the country’s private sectors rose above forecast as the drag on the economy from the Omicron variant lessened. Firms were quick to point out that high prices and supply chain constraints were still limiting their growth however.
Pound (GBP) Ticks Upward amid Hawkish BoE Comments
The Pound (GBP) edged higher against its safer rivals but struggled to make significant ground against its riskier competitors. The markets have seen a slight return of risk appetite after sanctions imposed on Russia by the UK were less harsh than expected.
Sterling likely also benefitted from hawkish comments Bank of England (BoE) deputy governor Dave Ramsden on Tuesday. Ramsden said that ‘further modest tightening’ would likely be required in order to prevent ‘high inflation becoming embedded in wage and price setting.’
Speaking in front of a parliamentary committee, BoE governor Andrew Bailey also expressed a hawkish tilt. Bailey stated further rate hikes would be necessary should the UK see ‘second-round effects’ from inflation. Sterling could be boosted by Bailey’s stance.
The Pound is likely to see headwinds from the Northern Ireland Protocol as negotiations between the UK & EU continue. Whilst a joint statement from both parties was seen as a promising sign, EU negotiators described the talks as neither a ‘breakdown’ nor a ‘breakthrough’.
Further headwinds for Sterling could come renewed scrutiny over the ‘partygate’ scandal. Reports detailing the police questionnaire issued to party attendees revealed that staff are being questioned under police question. The report could further undermine Johnson’s position and undermine confidence in GBP.
Pound US Dollar Exchange Rate Forecast: Will Bailey’s Speech bring More Hawkish Comments?
Looking to the week ahead, further speeches from BoE policymakers on Thursday and Friday could prompt movement in the Pound. In particular, a speech from BoE governor Andrew Bailey on Thursday could see Sterling climb should his comments be as hawkish as those given before the parliamentary committee.
Thursday’s distribute trades data for the UK could see GBP dip however should figures print a fall as forecast.
Similarly for the US, Thursday and Friday will see a number of speeches from Fed policymakers. The Fed’s outlook on rate hikes has been muddied of late. Investors are likely to be keenly watching for any hawkish comments.
US GDP growth estimates for the second quarter could boost USD on Thursday should they rise as forecast. Additionally, a drop in jobless claims could renew expectations of a rate hike from the Fed at their next meeting.