Pound US Dollar Exchange Rate Retreats amid Cautious Trade
The Pound US Dollar (GBP/USD) exchange rate struck a new year-to-date low this morning as the crisis in Ukraine continues to undermine market risk appetite.
At the time of writing the GBP/USD exchange rate is trading at around $1.3284, down roughly 0.4% from this morning’s opening levels.
US Dollar (USD) Firms amid Escalating Violence in Ukraine
The US Dollar (USD) is trending higher against the Pound (GBP) this morning as the situation in Ukraine continues to underpin demand for the safe-haven ‘greenback’.
Investors remain cautious this morning amidst fears Russian President Vladimir Putin ‘will not hold back’ as his offensive in Ukraine enters its ‘second stage’.
British Defence Minister Ben Wallace, warned:
‘Anyone who thinks logically would not do what [Putin] is doing, so we are going to see … his brutality increase.
‘He doesn’t get his way, he surrounds cities, he ruthlessly bombards them at night … and he will then eventually try and break them and move into the cities.’
The US Dollar is rising as markets fear Western powers will step up their sanctions in response to more Russian aggression.
Investors are particularly concerned by the potential for these sanctions to take aim at Russian oil and gas exports. As the world’s second largest oil exporter, any restrictions on Russian oil could have major consequences for the global economy.
Fears of a potential ban has propelled Brent crude to a seven-year high of $113 a barrel this morning. This will fan inflationary concerns and likely underpin safe-haven demand.
Pound (GBP) Weakens in Response to Gloomy Market Mood
At the same time, the Pound (GBP) is on the defensive again this morning as souring market sentiment leaves the increasingly risk-sensitive Sterling vulnerable to losses.
The pullback in the Pound is being exacerbated by speculation over how the crisis in Ukraine will impact Bank of England (BoE) monetary policy.
GBP investors continue to scale back their expectations the BoE could deliver a half-percentage interest rate hike this month.
Pound US Dollar Exchange Rate Forecast: More Ukraine Driven Volatility Ahead?
Looking ahead, it seems safe to assume the crisis in Ukraine will continue to dictate the direction of the Pound US Dollar exchange rate through the second half of the week.
Expect this to allow the US Dollar to extend its bullish trajectory so long as the situation continues to deteriorate.
Elsewhere we might see USD exchange rates influenced by Federal Reserve Chair Jerome Powell’s testimony in front of Congress.
The Fed’s monetary policy outlook will be in the spotlight, with Powell being grilled on how it might be impacted by the Russia-Ukraine war. A cautious response by Powell could exert pressure on the US Dollar.
Meanwhile, the focus for GBP investors will turn to the UK’s latest services PMI. Will the Pound strengthen if February’s finalised figures are revised higher?