Pound Dips amid Dovish Post-Announcement BoE Outlook, US Dollar Strengthened as Powell Signals Aggressive Future Rate Hikes

  • Hopes for Ukraine-Russia treaty prompt risk-on trading
  • Pound under pressure from dovish BoE outlook following rate hike
  • US Dollar supported by hawkish Fed rhetoric amid 0.25% interest rate hike
  • Euro strengthens as Zelenskiy signals willingness to drop NATO request

GBP/EUR Exchange Rate: Further Ukraine Evacuation Corridors Agreed

A return of risk appetite saw the GBP/EUR exchange rate steadily climb over the past seven days. Renewed confidence in the possibility of peace talks between Russia and Ukraine helped foster a risk-on trading mood.

Ukraine’s President Volodymyr Zelenskiy has repeatedly signalled that his country is open to negotiations,. Zelenskiy even hinted that he would be willing to drop his previous request for Ukraine to join NATO. Multiple agreements to establish evacuation corridors have also fuelled hopes for a diplomatic solution to the conflict. Reports that Russian forces have interfered with these attempts may harm the currency pair’s chances in the coming days however.

Looking ahead, news today that further evacuation corridors for humanitarian aid have been agreed for Wednesday could see the GBP/EUR pair climb higher. On the other hand, the continued bombardment of Ukrainian cities could drive investors away riskier currencies.

GBP/USD Exchange Rate: BoE Reigns in Hawkish Expectations

The Pound US Dollar exchange rate remained buoyant last week amid interest rate decisions from the Bank of England and Federal Reserve. The Bank of England announced a 0.25% interest rate on Thursday in order to combat soaring inflation.

Investors had been hoping for a more aggressive rate hike from the BoE. This, coupled with a dovish forward outlook from the central bank, caused the Pound to drop following the announcement. This also acted as headwinds for Sterling in the days following the announcement. The currency pair saw a boost ahead of the UK’s spring budget amid expectations of additional financial support from Chancellor Rishi Sunak.

Looking to the coming seven days, a fall to UK private sector growth on Thursday could see the GBP/USD pair fall if figures print as forecast. An expected drop to February’s retail sales on Friday could also limit the pair’s potential gains.

USD/GBP Exchange Rate: Fed Signals Aggressive Future Rate Hikes

A continued return of global risk appetite kept the US Dollar Pound currency pair subdued over the past seven days. Hopes for a diplomatic solution to the Russia-Ukraine conflict kept investors focused on riskier currencies. The US Dollar may be strengthened in the coming days however should Russian attacks on Ukraine’s civilian population centres continue.

Significant losses for the USD/GBP pair were likely limited following the Federal Reserve’s interest rate decision on Wednesday. The Fed’s announcement of a 0.25% rate hike was largely anticipated by markets. Hawkish rhetoric from Fed Chair Jerome Powell boosted confidence in the US Dollar. Powell outlined how the central bank was ready to pursue more aggressive rate hikes in the coming months.

Looking ahead, a number of speeches from Fed policymakers in the coming days could boost the pair should they echo Powell’s hawkish sentiment. A forecast drop to US private sector growth on Thursday could limit the pair’s upward momentum however should these figures print as forecast.

EUR/USD Exchange Rate: ECB Policymakers Hint at 2022 Rate Hike

Renewed confidence in the Euro kept the Euro US Dollar pair unsteady over the past seven days. Hopes for a diplomatic solution to the Russia-Ukraine conflict kept EUR buoyed. This came amid reports that Russian and Ukrainian representatives were close to agreeing a fifteen point peace plan.

Losses for the pair were also likely limited by renewed expectations of a 2022 interest rate hike from the European Central Bank (ECB). Investors have been ramping up bets after the US Federal Reserve raised rates for the first time in three years on Wednesday. ECB policymaker Klass Knot said that a rate hike in the fourth quarter of 2022 was still a ‘realistic expectation’.

Looking ahead, an expected downturn in Eurozone private sector growth on Thursday could harm the Euro and pull the pair down. On the other hand, a forecast rise to German inflation on Wednesday could boost EUR/USD pair amid renewed expectations of an ECB rate hike.

Gareth Monk

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