Russia-Ukraine tension and Central Bank policy dominate market focus

By Matthew Boyle

The last week has seen the Euro begin to claw back some lost ground strengthening against its major currency pairings with GBP and USD. A recent turnaround in stance from the European central bank regarding interest rate hikes has seemed to change the market sentiment towards the single currency, with many feeling we may see hikes later in the year, something which previously was not considered. As a result, some strength has come back to EUR which has been in somewhat of a freefall in previous months.

Central bank policy is certainly one of the main drivers in exchange rates currently, with Covid and its many forms having retreated to the shadows, at least for now. Both the Bank of England and US Fed are underway in a bullish number of interest rate hikes for 2022 with markets predicting by the end of the year rates will be as high as 1.5% for the USD and GBP rates at 1.75%. This is in comparison to the current rate of -0/11% for the EUR. Unsurprising therefore that exchange rates would be sensitive to any change from the ECB and will be a driving factor in rates this year.

The difficulty lies knowing how much has been priced into the short term given how aggressive the Fed and BoE are in their stance.

The Russian/Ukraine situation remains volatile and so too its result on the markets. Some reports suggest Russia have partly withdrawn troops. Others report frontline hospitals are currently being built – something Boris Johnson said looks clearly like a plan for invasion.

With the EUR & USD strength both heavily linked to stability here how this plays out will have a big impact on short-term rates.

Should you have any upcoming transfers speak to your consultant today for some friendly guidance on how to avoid risk get the most out of your transfer in continuing uncertain markets.