By Matthew Vassallo
GBP has seen its value decrease against both the EUR & USD over the past week, as the world’s two most traded currencies found increased support, pushing the Pound away from its recent 6 year high against the single currency and back towards a 3-month low against the greenback respectively.
GBP/EUR has fallen by around a cent since the start of the week, resulting in its biggest dip in 48 hours since the turn of the year. The Pound is suffering from the sharp overbuy seen towards the end of January and into early February, when investors fled the EUR as concerns grew over the potential knock-on effects the on-going destabilisation of Ukraine may have on the EU’s economy. Whilst these concerns have by no means completely dissipated, the rhetoric emanating from the Ukrainian President, is that peace talks have advanced in the past 24 hours. Most likely because Ukraine have announced that they will not seek to join NATO, a key condition set out by the Russian head of state upon entering Ukraine’s foreign sovereignty.
Add to this the fact that rising inflation levels across the EU’s key economic lynchpins Germany, France & Italy may leave the European Central Bank (ECB) with little choice apart from to raise their base interest rate, similar to the scenario the Bank of England (BoE) have found themselves in, due to spiralling inflation levels here in the UK.]
Looking at GBP/USD and cable rates have been on a steady decline since the crisis in Ukraine began. The complete destabilisation of both the Ukrainian economy and then Russia’s due to the economic sanctions imposed on it by the West in support of Ukraine, has sent ripple effects through the global markets. Stocks have tumbled, whilst the commodity driven economies have seen a stagnation not dissimilar to the one that they encountered during the first waves of the Covid pandemic.
Where next?
Members of the BoE will gather tomorrow for their second policy meeting of the year, in which it is widely anticipated that they will once again raise interest rates by 0.25%. This hike has no doubt being factored in by investors into GBP’s current value, so any deviation from the anticipated rise will likely result in increased volatility in the markets.
Expect the USD to remain well supported due to its safe-haven status, whilst the fallout from the economic & humanitarian crisis in Ukraine continues.