Pound Euro exchange rate rallies back towards €1.20 on Russian invasion fears

The Pound Euro exchange rate struck higher this week as investors shunned the single currency amidst growing fears that a Russian invasion of Ukraine is imminent.  

Euro rocked by Russia-Ukraine Tensions 

The Euro spent much of the past week on the defensive, with EUR exchange rates being undermined by heightened tensions between Russia and Ukraine, and concerns of the potential impact a war in Eastern Europe could have on the Eurozone. 

Analysts warned a Russia invasion of Ukraine and the resulting sanctions from Western powers could raise energy prices, negatively impact Europe’s banks and hurt economic growth. 

Claims from Moscow that it had withdrawn some of its troops from the border with Ukraine briefly bolster EUR sentiment in mid-week trade, before claims from US officials that this was false, pushed the Euro lower again in the latter half of the week. 

Meanwhile, the Pound was bolstered this week by expectations the Bank of England (BoE) is likely to maintain its current pace of aggressive rate hikes through 2022. 

Fuelling these expectations was a hotter-than-expected CPI print, which reported UK inflation climbed to a new 30-year high of 5.5% in January. 

However, the Pound’s gains were tempered somewhat by concerns over the UK’s cost-of-living crisis, which was highlighted by the UK’s latest jobs report after it revealed wage growth continues to lag well behind inflation.  

UK and Eurozone PMIs in the Spotlight 

Turning to next week’s session its likely the primary catalyst of movement in the GBP/EUR exchange rate will be the publication of the latest PMI figures from both the UK and Eurozone. 

The former could see the Pound bolstered at the start of next week, amidst expectations activity in the UK’s private sector will have improved this month. 

Meanwhile, the Euro could stumble at the start of the session if the Eurozone’s latest PMI releases report economic growth in the bloc remained lacklustre in February.  

In addition, EUR exchange rates are likely to remain sensitive to Russia-Ukraine developments, with the Euro poised to slump if tensions boil over and war breaks out in Eastern Europe. 

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