Pound Euro (GBP/EUR) Exchange Rate Wobbles at Multi-Year High amid Russia-Ukraine Negotiations
(Updated 15:30, 3/3/22) The Pound Euro (GBP/EUR) exchange rate wavered today as Russian and Ukrainian diplomats met for a second round of peace talks.
GBP/EUR briefly touched a near six-year high twice through today’s session but was unable to hold its gains.
The Russian invasion of Ukraine has pushed both the Pound (GBP) and the Euro (EUR) lower. However, the single currency has been far worse affected.
Hopes of a ceasefire are slim, though the the fact that both sides are open to diplomacy has comforted markets somewhat.
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Pound Euro (GBP/EUR) Exchange Rate near Six-Year High as War Weighs on the Euro
The Pound Euro (GBP/EUR) exchange rate hit its highest level since July 2016 earlier this morning, trading at €1.20825.
GBP/EUR has since wavered but remains strong as the Russia-Ukraine war keeps the Euro (EUR) under significant pressure.
Euro (EUR) Buckles under the Pressure of the Ukraine Crisis
The Euro sank to a near six-year low against the Pound (GBP) this morning as the ongoing war in Ukraine drains demand for the single currency.
While the war rages on, analysts are growing more concerned about the long-term economic implications for the Eurozone. Economic sanctions targeting Russia will inevitably hit the European economy, while energy prices are expected to surge even higher.
Meanwhile, more than one million people have fled Ukraine since Russia invaded last week.
Managing the growing refugee crisis and helping to rebuild Ukraine once the invasion is over will likely add to the economic challenges Europe is facing.
This has raised doubts about whether the European Central Bank (ECB) will go ahead with tightening monetary policy, even as Eurozone inflation soars to new record highs.
As a result, central bank policy divergence is adding to the pressure on the Euro once again. Last night, Federal Reserve Chair Jerome Powell said that it remains ‘appropriate’ for the Fed to raise rates in March. Markets also expect the Bank of England (BoE) to hike at this month’s meeting.
This combination of the ongoing war in Ukraine, the gloomy economic outlook and central bank divergence is pushing EUR to multi-year lows across the board.
Pound (GBP) Pressured but Outperforming EUR
While the Pound is also facing selling pressure due to the Ukraine crisis, it’s faring much better than the Euro. The war will impact the UK economy, but to a lesser extent than in the Eurozone.
In addition, the likelihood of a third back-to-back rate hike from the BoE is supporting the Pound. Markets expect the British central bank to go ahead with another 25-basis-point increase at its meeting on 17 March.
Recent cautious comments from policymakers at the BoE may be limiting Sterling’s upside potential, however. Multiple members of the Monetary Policy Committee (MPC) – including some of the more hawkish figures – have pushed back on expectations of an aggressive tightening cycle. Instead, policymakers say that they believe ‘modest’ tightening will be necessary in the near term, while the medium term is more uncertain.
So far this morning, the Pound Euro pair has wavered just shy of its near six-year high.
Pound Euro Exchange Rate Forecast: Russia-Ukraine War Remains the Focus
Shortly after noon, the ECB monetary policy meeting accounts are due out. These minutes from the central bank’s last interest rate decision could cause some movement. However, as they are from before the Russian invasion of Ukraine, they’ll need to be interpreted in the current context of both further economic uncertainty and the prospect of even higher inflation.
For instance, any hawkish elements may have less of a positive impact on the Euro, as many traders believe that the conflict has decreased the likelihood of tighter policy from the ECB.
Tomorrow brings more Eurozone economic data, including Germany’s balance of trade and the Euro area’s retail sales figures for January. These releases could bolster EUR, as economists expect positive results.
However, the Russia-Ukraine war is likely to remain the defining factor in the Pound Euro exchange rate.