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

  • Ukraine-Russia conflict continues to drive risk appetite
  • Euro falls after reports of massacre in Bucha
  • US Dollar boosted by hawkish Fed talk
  • Pound struggles despite GDP recovery

GBP/EUR Exchange Rate: Peace Talks Falter After Reports from Bucha

The Pound Euro exchange rate rose over the last seven days driven largely by the war in Ukraine. Despite promises of de-escalation from Russia, heavy fighting persisted around the outskirts of Kyiv as well as continued shelling of multiple cities. Some successful humanitarian efforts likely limited significant gains for the pair.

Hopes for a diplomatic solution to the conflict retreated further as the week went on. On Sunday, Ukrainian forces recaptured the town of Bucha and reported instances of multiple civilian executions by Russian forces.

Looking ahead, further hostilities in the war in Ukraine are likely to keep the currency pair bolstered. The Pound could dip in the coming days should the release of information surrounding the ‘partygate’ scandal affect confidence in Prime Minister Boris Johnson’s government.

GBP/USD Exchange Rate: Analysts Warn of Imminent Growth Slowdown

The Pound US Dollar exchange rate dropped over the past seven days amid a volatile risk appetite. A continued dovish stance from Bank of England policymakers limited major gains for Sterling.

UK GDP figures on Thursday helped provide a small boost to the Pound. The UK economy grew at a rate of 1.3% in the fourth quarter of 2021, bringing UK GDP just below pre-pandemic levels. Analysts warned of a slowdown in the coming months however with the war in Ukraine set to push energy costs even higher.

Looking to the week ahead for Sterling, a forecast drop to GDP figures on Monday could weigh upon the Pound and further harm the UK’s economic outlook.

USD/GBP Exchange Rate: Fed Continues to Signal Hawkish Forward Policy

The US Dollar Pound exchange rate steadily climbed over the past week. A worsening outlook surrounding the war in Ukraine prompted investors to flock to the safe-haven ‘Greenback’. Additionally, a continued hawkish stance from the Federal Reserve underpinned any significant losses for the US Dollar.

Robust employment figures on Friday also helped boost the US Dollar. Non farm payrolls rose for a fifteenth consecutive month by 431K whilst unemployment remained close to historic lows at 3.6%. Strong PMI figures for the US services sector also helped the currency to make gains against the Pound.

Looking ahead for the US Dollar, the release of the latest Fed minutes on Wednesday could push the currency higher should they signal a hawkish forward outlook. A forecast rise to US inflation on Tuesday could also boost the US Dollar should investors see it as a sign for more aggressive action from the Fed.

EUR/USD Exchange Rate: German Bank Warns Possibility of Recession

The Euro US Dollar exchange rate dipped over the course of the past seven days as the Ukraine-Russia conflict continued to worsen. Reports on Sunday of civilian executions by Russian forces in the town of Bucha kept the Euro suppressed.

High inflation figures for the Eurozone and Germany likely helped limit any major falls for the EUro in the past week. The European Central Bank has begun to show signs that it may be considering an interest rate hike this year.

On the other hand, Bundesbank chiefs warned of a possible recession in Germany due to the Ukraine-Russia conflict and soaring inflation which dented confidence in the Euro.

Looking ahead for the Euro, the final reading of German inflation figures on Tuesday could see the currency pair dip further.

Gareth Monk

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