US Dollar Climbs after Healthy Employment Figures, Euro Recovers amid Russia-Ukraine Ceasefire

  • Russian-Ukraine conflict continues to drive risk attitude
  • Euro recovers amid temporary ceasefire
  • Pound bolstered by BoE rate hike expectations
  • US Dollar climbs after robust employment figures

GBP/EUR Exchange Rate: BoE Raises Concerns over Brexit’s Impact on Sector

A weakened Euro saw the GBP/EUR exchange rate initially climb to its highest point since February 2020. The Russian invasion of Ukraine kept pressure on the single currency as Russian attacks on key cities intensified.

The Pound was also bolstered by expectations of an interest rate hike from the Bank of England (BoE). Whilst analysts are expecting the conflict to curb future rate hikes, the BoE is still expected to raise rates at their next meeting.

The central bank may have generated headwinds for Sterling however following comments from deputy governor Jon Cunliffe.

In a speech on Monday, Cunliffe outlined how Brexit may cause significant harm to Britain’s financial sector.

The Pound may see further headwinds in the coming days over the Northern Ireland Protocol. Negotiations have resumed this week but a lack of substantial progress could harm confidence in Sterling.

GBP/USD Exchange Rate: UK’s Retail Sector Recovers despite High Inflation

The GBP/USD exchange rate continued to drop last week as investors flocked to the safe-haven ‘Greenback’.

A further recovery to the UK’s retail sector limited significant losses for the Pound last week. February’s PMI rose to 60.5 in February up from 54.1 in January.

Whilst analysts saw the figures as encouraging following the Omicron wave, inflationary pressures have led to a less optimistic outlook for future months.

Further promising data for the UK’s retail sector on Tuesday helped prevent GBP from significant falls. Retail sales jumped by 6.7% in February after the removal of the last of the UK’s Covid-19 restrictions.

UK GDP figures for January could help boost the Pound on Friday should they print as forecast. On the other hand, a predicted widening of the UK’s trade deficit could limit gains.

USD/GBP Exchange Rate: Dollar Rises after Hawkish Powell Testimony

The USD/GBP exchange rate continued to climb over the course of last week.  Investors continued to flock to the safe-haven ‘Greenback’ in the face of the Ukraine-Russia conflict.

A hawkish testimony from Federal Reserve Chair Jerome Powell last week also helped USD to make gains. Powell stated he would ‘support a 25 basis point rate hike’, and that the Fed would be prepared to support more aggressive future action if necessary.

The US Dollar continued to rise after a robust reading of payrolls figures on Friday. The figures showed the US labour market adding 678K jobs in February, above forecasts of 400K.

A drop in unemployment rate to 3.8%, a two-year low, also supported USD’s climb. Further speculation of a rate hike by the Fed at their next meeting increased bets on the currency.

For USD, February’s inflation figures on Thursday could further increase expectations of a Fed rate hike should they rise as forecast. This could in turn help USD climb.

EUR/USD Exchange Rate: Euro Recovers Ground as Ceasefire Announced

The Russian invasion of Ukraine continued to dent confidence in the Euro last week and pushed the EUR/USD exchange rate lower.

As the conflict entered its second week, fears that Russia could cut gas supplies to Europe cause jitters in the markets.

Monday saw a return of confidence in the Euro however. Negotiations between Russia and Ukraine led to a temporary ceasefire to aid the evacuation of civilians.

Additionally, the Euro saw a boost following reports that the EU is set to considering the sale of joint bonds to fund energy and defence expenses within the bloc.

Euro investors will be keenly awaiting the European Central Bank’s (ECB) interest rate decision on Thursday. Whilst analysts see a rate hike as unlikely, any hints of a 2022 hike could bolster EUR.

Gareth Monk

Contact Gareth Monk


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