GB Pound
Sterling came under pressure, as negative risk sentiment triggered by the Russian military action weighed on the currency.
Movements
GBPUSD opened at 1.3633 and, after a quiet first half of the week, fell heavily on Thursday, losing more than 2%. It closed with a significant loss of 1.89% at 1.3375.
GBPEUR opened at 1.1994 and despite the general increase in FX volatility, remained relatively calm, trading rangebound all week. It closed at 1.1950 (-0.37%)
Movement rationale
After advancing in the previous week, supported by upbeat inflation, unemployment, and retail sales data, Sterling couldn’t maintain the momentum as the escalation in the Russia-Ukraine conflict heavily weighed on the currency. Whilst the first half of the week was relatively quiet, the Russian invasion into Ukrainian territories on Thursday brought a high level of volatility in the FX market, risk appetite deterioration, and a sell-off in risk currencies such as GBP, which lost 2% against the Dollar. The Pound then managed to stabilise during the trading session on Friday but remains threatened by a further escalation in Eastern Europe. A potential scale back of the BoE’s aggressive monetary stance combined with more risk-off market conditions could see Sterling under pressure in the coming weeks.
Week ahead
With a light economic calendar ahead, GBP will be mostly influenced by risk sentiment and development in the Russia-Ukraine conflict.
Calendar
Tuesday 9:30am | Markit Manufacturing PMI(Feb)
Thursday 9:30am | Markit Services PMI(Feb)
US Dollar
The Dollar soared as the Russia-Ukraine crises escalated.
Movements
EURUSD opened at 1.1365 and followed a similar path to GBP/USD, falling 2% on Thursday and reaching its lowest level in 9 months. It closed with a loss of 1.52% at 1.1192.
GBPUSD opened at 1.3633 and, after a quiet first half of the week, fell heavily on Thursday, losing more than 2%. It closed with a significant loss of 1.89% at 1.3375.
Movement rationale
During the first half of the week, the Dollar showed little movement, as investors remained anxious and awaited further geopolitical developments. This changed when Putin announces the launch of a full-scale invasion of Ukraine. The market reacted with a sell-off in equities and a flight to quality assets such as the Greenback, which gained almost 2% on Thursday. The USD advanced against most European currencies, pushing EURUSD to a new 2022 low, despite relatively dovish rhetoric from some Federal Reserve policymakers, as the invasion put an end to speculations that the Fed would hike rates by 50 bps in its next meeting (markets are now pricing in a 90% chance the of a 25bp rate increase in March). Friday was another volatile trading session, with investors awaiting the West’s response to the Ukraine invasion. US President Biden ruled out any military response, reassuring the market that the escalation of the Ukrainian crisis will not lead to a military confrontation with Russia. Consequently, the global market partially recovered with the USD eventually giving back part of its gains.
Week ahead
It will be another volatile week, where on top of the USD sensitivity to the geopolitical situation, there is a busy US macro calendar that includes unemployment data on Friday.
Calendar
Tuesday 3pm | ISM Manufacturing PMI (Feb)
Wednesday 1:15pm | ADP Employment Change (Feb)
Thursday 1:30pm | ISM Services PMI (Feb)
Friday 1:30pm | Nonfarm Payrolls (Feb)
Euro
The Euro was heavily hit by the Russian invasion of Ukraine.
Movements
EURUSD opened at 1.1365 and followed a similar path to GBP/USD, falling 2% on Thursday and reaching its lowest level in 9 months. It closed with a loss of 1.52% at 1.1192.
GBPEUR opened at 1.1994 and despite the general increase in FX volatility, remained relatively calm, trading widely rangebound all week. It closed at 1.1950 (-0.37%)
Movement rationale
Given the Eurozone’s proximity to Ukraine and the high dependence on Russia’s natural gas, it comes as no surprise that last week the Euro was one of the hardest-hit currencies. The EUR lost ground against most rival currencies as investors digested the implications of Russia's latest moves and assessed the potential negative impact on Europe’s growth should we see an intensification of the conflict. Western countries responded to the Russian invasion with a series of sanctions, including Germany’s decision to suspend the approval process for the Nordstream 2 gas pipeline from Russia to Germany. Other measures include cutting some Russian banks from the SWIFT financial network, limiting Moscow's ability to deploy its foreign reserves and shutting its airspace to Russian aircraft. This is expected to have a negative economic impact on both Russia and Europe, with the threat of higher energy prices in Europe and potential implications for ECB policy, which might turn more cautious /dovish.
Week ahead
It is a busy economic week for the Euro given the release of February eurozone CPI on Wednesday. However, the single currency will likely be more sensitive to any geopolitical event in Eastern Europe.
Calendar
Wednesday 10am | Core Consumer Price Index (Feb)
Thursday 9am | Markit PMI Composite (Feb), Unemployment Rate (Jan)
Friday 10am | Retail Sales (YoY)(Jan)
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