Market Update 28th February – 4th March

Where you will be able to keep up to date with all the latest changes in the currency market

GBP

As we finish up what has been an eventful February, the GBP/USD rate finds itself even lower than it was at the end of January. The rate is the lowest it has been since before Christmas, and this is primarily due to the conflict occurring in Ukraine over the last few weeks. As previously mentioned, in times of the crisis the Dollar tends to prevail, and this has certainly been the case. The conflicts continue to escalate with speculation that Moscow is becoming more frustrated at the slow progress being made in Ukraine. Russian soldiers have been met with stronger-than-expected Ukrainian forces, Putin has mentioned that nuclear warfare is not ruled out. Against the Euro the Pound has lost some momentum that it gained over the course of the month, falling over 1% from the highs of last week. With regards to data this week will be quiet for the UK, and the headlines surrounding the war will take the lead in market movements.

EUR

Due to its proximity to Ukraine and Russia, the Euro has inevitably taken a hit over the last week or so. Against the Dollar it has lost over 2% from the highs of last week, and although it lost some ground against Sterling during the middle of last week, it has since regained some ground. Global markets are down across the board, and it is no surprise that investors look to low-risk currencies whilst they wait for the dust to settle in Ukraine. With regards to data, the Eurozone saw inflation print at 5.1% which is a record high in the history of the currency. Although ECB President Christine Lagarde has played down the idea of rate hikes, there is growing pressure for some sort of action, particularly as the Fed and BoE are hiking regularly and leaving the ECB behind them. Lagarde will be speaking this afternoon and investors will be looking for indications for a more hawkish approach as rate decisions come over the next few weeks. Thursdays Unemployment rate for January and Fridays retail sales will give a good indication for the state of the economy. GDP figures for Germany last Friday were much stronger than expected and it is likely this brought some strength to the Euro. If data continues to be positive, we could see a hawkish approach from the ECB over the coming weeks, despite the current situation surrounding Ukraine.2

USD

As expected, the crisis going on in Ukraine has no doubt strengthened the Dollar and it has made significant gains against Sterling and Euro since last week. However, these risks could be quickly neutralised if Russia continue to struggle against the strong Ukrainian forces they are being met with. G7 leaders came together and announced they could possibly implement ‘the mother of all sanctions package’ which would see the official reserve assets of the Central Bank of Russia (CBR) frozen. A move this significant would put huge pressure on Russia and ideally stop them from making advances. Although, eviction from the SWIFT payment system would arguably be the biggest sanction possible. Looking at the week ahead there are multiple points where the Dollar may experience volatility. Those being ISM Manufacturing figures out on Tuesday, ISM Services on Wednesday, and Nonfarm payrolls out on Friday. These give significant insights into the performance of the US economy and considering interest rate decisions are out in the next few weeks, decision makers within the Federal Reserve will be using this data to aid their decision on whether to hike the rates or not.