Currency markets react to the Russian Invasion of Ukraine

By Tom Arnold

As predicted the US Dollar (USD) strengthened on the back of yesterday’s emotive news that Russia had officially invaded Ukraine. As the most heavily traded currency in the world this ‘safe-haven’ currency was able to gain over 2 cents against both the Pound (GBP) and the Euro as economic data took a backseat in the face of this conflict. At present the EUR/USD sits close to an 18 month low. The movement of the USD against both currencies in turn impacts the rate of GBP/EUR which and is something to continue to monitor.

The international community responded quickly to denounce Putin’s actions and follow through on their assertions that Russia will feel the impact of their actions across the globe. For the UK, Boris Johnson announced further action against Russian companies, individuals and assets and Aeroflot (the Russian airline) is now banned from landing in the UK. These new measures extend those already announced on Tuesday this week but further sanctions are being discussed including the seizure of property and other assets owned by key Russian individuals in the UK. President Biden followed suit having declared Putin the “aggressor” who “chose this war”. Europe (less agile in its requirement for member state agreement to action) has declared it’s intention to impose new restrictions on Russia over the coming days.

Global financial markets were thrown in to chaos as traders try to protect themselves from the crisis and pending uncertainty as explosions continue to be reported throughout Ukraine. The Russian Central Bank is reported to have intervened in the forex market for the first time since 2004 as the Russian Rouble fell to an all time low against the USD. It is suspected that over $2billion was spent by the Central Bank in an attempt to stabilise the country’s economy. Accurate figures are expected on Monday.

Wholesale gas prices moved up over 35pc through the day as fears grow over the use of Russian gas supplies. This presents a particular problem to the EU who source over 40pc of their gas supply from Russia putting additional pressure on the euro. Further concern for the single currency arises from Ukraine’s position as ‘the bread basket’ of Europe, a key exporter of grain and wheat to the EU. This could mean that the Pound may find further strength versus the single currency, producing or own wheat and grain and less heavily reliant on Russian gas supplies, which euro sellers should be aware of. However, with the UK facing it’s own inflation crisis and energy prices rising quickly, it’s difficult to see the Pound being able to take advantage of this to any significant extent. All bets are off to which way the currency market could move – uncertainty is the only thing we can rely on for now.

Intra-day trading saw much volatility as currency markets saw a flurry of activity and it really was a case of timing that would have been key to the rate of exchange you could achieve yesterday. During times of uncertainty it is very important to keep in touch with us to discuss any currency requirements that yo have.