The Pound US Dollar (GBP/USD) exchange rate remained changeable last week. The currency pair’s movements were largely dictated by a volatile risk appetite as the Russian invasion of Ukraine entered its second week. Peace talks between the two countries on Thursday helped the currency pair to climb, although hotter than expected US inflation figures saw it fall again.
What’s Been Happening: Risk Appetite Returns amid Peace Talks
The GBP/USD exchange rate began the week on a downward trend as investors continued to flock to the safe-haven ‘Greenback’. Further escalation in the Russia-Ukraine conflict kept risk appetite limited.
Risk-on trading increased in the lead up to peace talks in Turkey on Thursday and kept the Pound (GBP) bolstered throughout the negotiations. The talks were unproductive however and likely contributed to a pullback in risk appetite.
The Pound saw an additional jump after GDP figures for January printed above forecast. All UK sectors returned to growth following the impact of the Omicron wave.
Above-forecast US inflation figures helped the US Dollar (USD) to climb on Thursday. Year-on-year annual inflation hit 7.9% in January and was its biggest leap since 1982. Surging food and petrol prices were thought to be the main drivers of the surge.
Weekly highlights
1. Russian Invasion of Ukraine
The conflict is likely to continue to drive movements in the GBP/USD exchange rate. Further peace talks on Monday could see a gradual return of risk appetite.
2. UK Employment Figures
January’s unemployment rate is forecast to remain largely unchanged on Tuesday. This could further calls for a rate hike from the Bank of England (BoE).
3. Federal Reserve & Bank of England Interest Rate Decisions
Whilst markets have largely priced in rate hikes from both central banks, the US Dollar and Pound could both climb following the decisions.
GBP/USD Forecast
US PPI figures for February are forecast to remain largely unchanged on Tuesday which could see USD trend higher. A predicted drastic fall to US retail sales for February on Wednesday could limit these gains however.