GBP/USD Exchange Rates Plunges Further on Fear of Ongoing Conflict
(Updated 16:55, 24/02/2022) The Pound US Dollar (GBP/USD) exchange rate fell further through this afternoon as the UK and other Western allies prepare to unveil fresh sanctions on Russia.
The situation on the ground in Ukraine appears to be getting worse, with explosions now having been reported across the whole of the country. Russian troops have entered Ukraine via Belarus and Crimea and fighting has been reported around Shchastya as Poland prepares a list of 120 of its hospitals where people affected by the conflict can be treated.
In the wider currency markets, the Russian central bank has had to purchase millions of Roubles in order to prevent the collapse of the Moscow stock exchange, after the currency plunged to an all-time low against the dollar.
Elsewhere, commodity currencies are buoyed by rising energy prices on supply fears – Russia is the world’s second-largest oil producer and the largest supplier of natural gas to Europe. Safe-haven currencies such as the US Dollar (USD), meanwhile, have attracted risk-off support as uncertainty abounds regarding the current political situation.
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Pound US Dollar Exchange Rate Nosedives as Safe-Haven Assets Attract Support
The Pound US Dollar (GBP/USD) exchange rate has dropped to a 3-week low this morning as investors fly to safe-haven assets amidst turmoil in Ukraine.
At the time of writing, GBP/USD is trading at $1.3430, 0.8% below today’s opening levels.
US Dollar (USD) Rides Wave of Risk Aversion
The US Dollar (USD) has gained against its peers so far today in the wake of significant developments regarding the Russia-Ukraine conflict.
Russia launched a military attack on Ukraine in the early hours of this morning in what President Vladimir Putin called a ‘special military operation’ to ‘demilitarize and denazify’ the neighbouring country.’
Explosions were heard and reported in many cities and military locations around Ukraine around 3am GMT, following a televised address in which Putin justified the attack by claiming that ‘a hostile anti-Russia is being created on our historic lands’.
Russian troops landed in Odessa, and Ukrainian airfields were targeted outside Kharkiv, Kherson and Ivano-Frankivsk.
UN representatives were present at a security briefing when the invasion broke out, and were united in their dismay and calls for ceasefire. In a joint statement, Ursula von der Leyen and Charles Michel, Presidents of the European Commission and Council condemned Russia’s unprecedented military aggression against Ukraine, stating:
‘The EU stands firmly by Ukraine and its people as they face this unparalleled crisis. The EU will provide further political, financial and humanitarian assistance.’
In the currency markets, the Russian Rouble has fallen to an all-time low. Asian stocks tumbled and European stock futures point to sharp losses as gold and palladium prices surge. The ‘Greenback’ looks to climb further still as risk aversion dominates trading sentiment.
Pound (GBP) Sinks as Russian Conflict Dampens Rate Hike Expectations
The Pound (GBP) is down against its peers this morning as a widespread risk-off mood draws support away from perceived-riskier assets. Low market sentiment also has a secondary effect – to dampen Bank of England (BoE) rate hike bets.
Markets priced a real chance of a 50bps hike by the BoE at their March meeting: but MUFG Bank now expects investors to adjust expectations more in favour of a 0.25bps hike. According to economists:
‘The conflict is likely to encourage market participants to scale back expectations for monetary tightening from major central banks in the near-term.’
Sentiment around the central bank’s forward guidance had already turned slightly more dovish in the wake of yesterday’s interview with MPC members Ben Broadbent, Jonathan Haskel and Silvana Tenreyro, and Governor Andrew Bailey.
Bloomberg analysts observed that the BoE policymakers attempted to ‘calm expectations’ of rates rising as high as 2% this year, stating:
‘The BOE’s central case does not envisage official rates going anywhere near the levels currently priced-in… This doesn’t mean there won’t be a third consecutive rate hike at the next meeting on March 17, just that it is more likely to be a regular 25 basis points.’
Pound US Dollar Exchange Rate Forecast: Central bank Speakers to Influence Rates?
Looking ahead, the main driver of market movement is likely to be the ongoing situation in Ukraine. As more casualties are reported and UN members threaten tougher sanctions against Russia, risk sentiment may well plummet further.
However, BoE Governor Andrew Bailey is also scheduled to speak, alongside the Federal Reserve’s Raphael Bostic and Loretta Mester.
Depending on the tone these speakers strike, the Pound US Dollar exchange rate could waver – although further warnings from Andrew Bailey are most likely to apply GBP downside.