The Pound Euro exchange rate was infused with some notable volatility over the past week as Russia’s Invasion of Ukraine sowed discord within markets.
Currency market fluctuates wildly in wake of Russian military action in Ukraine
The Pound Euro exchange rate traded erratically over the past week, with the pairing regularly jerking from one direction to another as Russia’s invasion of Ukraine sparked market turmoil.
At the start of the week, the pairing trended higher, with the Pound benefitting from stronger-than-expected PMI readings and the Euro being dented after Russian President Vladimir Putin recognised parts of Eastern Ukraine as independent states.
While EUR exchange rates bounced back after initial sanctions on Russia were deemed as being ‘soft-touch’ by markets, the single currency faced fresh rejection on Thursday after Russia launched a full-scale invasion of Ukraine.
The Euro is particularly sensitive to the situation in Ukraine amidst concerns how the conflict could impact the Eurozone economy.
Meanwhile, uncertainty over the Bank of England’s (BoE) next interest rate hike acted as a headwind for the Pound in the latter half of the week.
Speaking before parliament on Wednesday, BoE Governor Andrew Bailey warned markets should ‘not get carried away’ with aggressive rate hike bets.
Expectations for a half-percentage increase in interest rates were further dented by the situation in Ukraine, the uncertainty over which is expected to result in central banks adopting a more cautious approach to monetary policy.
Ukraine crisis likely to continue to dominate market movement
Turning to next week it seems safe to assume that the situation in Ukraine will continue to dominate markets.
As such it’s highly likely we will see trade in the GBP/EUR exchange rate remain choppy, with any escalation of the crisis or the imposing of further sanctions likely to infused considerable volatility in the currency market.
On the data front the focus next week will be on the Eurozone’s consumer price index. If February’s preliminary figures report inflation continued to accelerate then it might help to underpin the Euro if it bolsters expectations for a European Central Bank (ECB) rate hike later in the year.
Meanwhile, with GBP data thin on the ground next week, the direction of the Pound is likely to be determined by domestic political developments as BoE rate expectations.
In terms of politics GBP investors will be keeping a close eye on MP’s opinions of Boris Johnson’s handling of the Ukraine crisis. Any criticism could raise further questions over the future of his premiership.
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