Euro Boosted amid Progress in Peace Talks, US Dollar Climbs as Inflation Hits 40-Year High

  • War in Ukraine continues to drive market appetite
  • Euro recovers amid productive peace talks
  • US Dollar climbs after fresh inflation highs
  • Pound buoyed by further tightening of labour market

GBP/EUR Exchange Rate: Zelenskiy Signals Progress in Peace Talks

The Pound Euro exchange rate saw a fall from its previous highs in the past week. The announcement of diplomatic talks between Russia and Ukraine’s foreign ministers, hosted in Turkey, saw a return of confidence to the Euro.

The currency pair continued to drop following the talks in Turkey as the Euro saw renewed trading. Whilst both sides admitted to a ‘difficult’ meeting, further meetings over the past week were cited as much more productive. The change in trading mood kept gains limited for the Pound Euro throughout the week.

Looking ahead, further developments in peace talks are likely to limit appetite for the Pound in the coming weeks. Recently, Ukrainian President Volodymyr Zelenskiy signalled that he may be willing to drop his request for his country to join NATO in order to facilitate negotiations.

GBP/USD Exchange Rate: UK Labour Market Tightens ahead of BoE Interest Rate Decision

The Pound US Dollar exchange rate initially fell on Wednesday as the US Dollar remained strong amid the Ukraine-Russia conflict.

The Pound was able to recover some of its losses on Friday following positive GDP figures for January. All UK sectors returned to growth following the impact of the Omicron wave in December, largely fuelled by a surge in the hospitality sector.

The currency pair traded narrowly as the week went on. Significant falls were limited by ongoing expectations of an interest rate hike from the Bank of England (BoE) however.

Additionally, better than forecast employment figures last Tuesday helped boost the Pound and further increased speculative bets on a BoE rate hike as the UK’s labour market tightened further.

Looking to the coming week for Sterling, investors will be awaiting the BoE’s interest rate decision on Thursday. The Pound is likely to climb following the announcement despite markets having largely priced in the hike.

USD/GBP Exchange Rate: US Inflation Hits 40-Year High

The US Dollar Pound exchange rate made steady gains over the past week amid expectations of an imminent interest rate hike from the Federal Reserve.

A boost to the US Dollar after inflation hit a 40-year high last Thursday helped push the currency pair higher. The figures further increased bets on the US Dollar ahead of the Fed’s interest rate decision. Markets were thought to have reigned in their expectations of a more aggressive hike however amid the war in Ukraine.

The Russia-Ukraine conflict continued to drive demand for the safe-haven ‘Greenback’ over the last seven days. Demand remained high despite some less cautious trading on the Euro.

Investors will be keenly awaiting the Fed’s interest rate decision on Wednesday, with the US Dollar likely to climb following the meeting should a rate hike occur as forecast.

EUR/USD Exchange Rate: ECB Leaves Rates Unchanged amid Ukraine-Russia Conflict

The Euro US Dollar exchange rate began the past seven days at a disadvantage. This followed the European Central Bank’s (ECB) decision to leave interest rates unchanged.

The ECB signalled that they would continue to hold off on raising rates amid the ongoing war in Ukraine. High demand for the safe-haven US Dollar kept the currency pair on a downward path.

Renewed prospects of a diplomatic resolution to the Russia-Ukraine conflict did help the Euro recover some of its earlier losses. Ukrainian and Russian representatives have continued to signal that the talks have been productive. The currency pair climbed off the back of these hopes.

Looking to the coming week, the Euro US Dollar pair is likely to continue to be affected by the war in Ukraine. A speech on Thursday from ECB President Christine Lagarde could pull the Euro down should she reiterate the ECB’s dovish stance. On the other hand, a forecast rise to Eurozone inflation could help strengthen the single currency and boost the currency pair.

Gareth Monk

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