The pound is at its lowest on Thursday as investors await the Bank of England interest rate decision. The Bank is expected to raise interest rates for the third meeting in a row by 25 basis points up to 0.75% at noon today. Despite the economic uncertainty following the war in Ukraine the Bank is anticipated to hike borrowing costs but to also strike a cautious tone about the economic outlook.

However, analysts have noted that market sentiment towards the pound might have now become too gloomy, as the pound has underperformed recently. If the Bank votes for a larger hike this month, then the pound could strengthen. According to market pricing expectations, 134 basis points of rate hikes will be delivered by the end of 2022, so that the Bank fights inflation.

Inflation concerns

Other economists remain optimistic and anticipate the Bank to deliver a supportive message especially since inflationary pressures will increase due to the war in Ukraine. Some economists have said that with accelerating inflation, the Central Bank will have to raise rates further. With the labour market tighter for a longer period of time, economists have said that the BoE will raise interest rates from 0.50% currently to 2.00% by the end of 2023.

Inflation has reached 5.5% in January, and is expected to rise over 7% in April, so the Bank will need to act by tightening its policy. Higher wages mean higher inflationary rates, which the Bank of England will control by raising interest rates. A wage-price spiral could develop at a time when struggling households seek help to respond to the cost-of-living squeeze.  

The higher oil and commodity prices after the Ukraine war have also added to the inflationary pressure and have hurt the UK’s economic outlook. It may not be an easy decision for the Bank but raising rates might be the most likely scenario.

Cautious BoE

The Bank of England could strike a more cautious tone than markets are expecting due to the war in Ukraine, which could push the pound lower. According to Barclays, if the Bank is concerned with growth following the war in Ukraine, instead of prioritising inflationary pressures this could weaken Sterling.

Markets will also be looking at how the members of the MPC will vote and, if the number of those voting for a 50 basis point rate hike falls, then this will also push the pound lower.

As RBC Capital Markets explained:

“The impact of the Russia-Ukraine war means that inflationary risks are very firmly tilted to the upside, and higher inflation is likely to persist for longer than previously thought with the hit to real incomes from that weighing on demand. At some point, the MPC will be forced to consider the trade-off between responding to higher supply-side-driven inflation and dealing with slower growth.”

Yesterday, the Federal Reserve raised US interest rates for the first time since 2018. Now markets are looking to see whether the Bank of England will increase its UK borrowing costs for a third time in a row. The BoE will have to make a tough decision as it faces a dilemma. On the one hand, inflationary pressures have increased following the war in Ukraine. On the other hand, UK households are struggling to manage higher costs following higher energy bills and higher taxes. But there are other concerns from Bank of England committee members who fear that the economy will enter a recession as a result of over-aggressive interest rate increases.  

In worrying times like this, it is important for us to point out that we completely acknowledge the wider implications of international conflict. Our principle duty as a company is to ensure that our clients are aware of all of the factors that affect currency exchange rates, which sadly sometimes includes war. Our thoughts are with everyone who is being affected by this escalating situation, and our currency updates do not intend to diminish, ignore or undermine the true impacts of this conflict.

The pound rose on Wednesday following encouraging news on the peace talks between Ukraine and Russia. Economists at Scotiabank expect a hawkish Fed and a cautious BoE to push the pound against the US dollar lower.

While the Fed is expected to hike by 25bp today and signal 90bp of further tightening this year, the move is fully priced in by markets and the main driver for today will be the optimism surrounding the peace talks today. There are no data releases in the UK calendar today and the pound will continue to find support from market optimism around a possible de-escalation in Ukraine. Investors are also perhaps a bit cautious ahead of tomorrow’s Bank of England meeting, where a rate hike and more positive comments could help the pound rise. If there are no surprises from the Fed today, then the GBP/USD should be able to hold on its gains.

The positive market sentiment has also pushed European stock markets higher, with the FTSE 100 index in London up 1% at 7,249 and the Germany, French and Italian exchanges 3% ahead. The pan-European Stoxx 600 index rose 2.6%.

Russia – Ukraine peace talks

Ukraine’s president Volodymyr Zelenskiy said the talks were “more realistic” while Russian foreign minister Sergei Lavrov said there was “some hope for compromise,” with Russia demanding a neutral status for Ukraine.

Since the 24th of February when the invasion began, Russian troops have failed to seize any of Ukraine’s biggest cities, while they have aggressively bombed and destroyed smaller towns and cities.

What does Russia demand?

One of the central questions is what President Vladimir Putin wants, as many have claimed that he seeks to restore Russia’s sphere of influence over older Soviet territories like Ukraine, and to stop their links to the West. Putin also seems to want to overthrow Ukraine’s pro-Western government and install a pro-Russian puppet leadership, so Ukraine is under Russia’s influence.

In terms of the talks, Russia wants legal guarantees that Ukraine will never be allowed to NATO and wants Ukraine to sign a neutrality agreement and change its constitution to solidify this reality.

Moscow has demanded that Ukraine recognise the independence of pro-Russian republics of Donetsk and Lugansk. It has also demanded that Ukraine recognises Crimea, which it annexed in 2014, as Russian territory. And it has called on Ukraine to cease all military activity.

In a televised speech to government ministers on Wednesday, Putin referred to the pain that Western sanctions have inflicted on the economy but insisted that Russia could tolerate the blow. Trying to justify the war in Ukraine, he claimed that there were concerns that: “In the foreseeable future, it was possible that the pro-Nazi regime in Kyiv could have got its hands on weapons of mass destruction, and its target, of course, would have been Russia.” He said: Western countries wanted to turn Russia into a “weak dependent country; violate its territorial integrity; to dismember Russia in a way that suits them”.

He clarified that he was willing to discuss “the neutral status of Ukraine, its demilitarisation, and its ‘denazification’”.

What does Ukraine want out of the talks?

President Zelenskyy said on Monday that Ukraine wants a “fair peace” with Russia, but his country won’t surrender, or accept ultimatums from Russia. Ukraine has demanded a ceasefire with Russia but it won’t surrender any of its territory to Russia. Ukraine may be willing to forego NATO if there are “security guarantees” from the US and NATO about its safety.

An immediate concern for Ukraine has been the creation of humanitarian corridors to allow the safe evacuation of civilians. Mariupol, for example, is surrounded by Russian forces and has been bombarded with civilians struggling to survive with limited food, water and power. Ukraine has said that has send a convoy with humanitarian supplies to the port city on Tuesday and hopes to evacuate women and children as it returns, according to Reuters. More than 2,500 civilians have been killed in Mariupol since the war started, according to a Ukrainian official cited by Reuters.

If you are exchanging pounds to US dollars, you might be concerned with the main themes and drivers that affect this popular currency pair. The pair is most volatile and can go up or down depending on various economic updates, geopolitical tensions such as the Ukraine conflict and other events such as Central Banks’ monetary policy and interest rate decisions. In this article, we will focus on the pound and analyse those factors that tend to offer support to the pound or push the British currency lower.

Let’s begin with the news or events that could have a negative effect on the pound. This means that if the pound goes lower, the US dollar will strengthen.

Factors that could weigh on the pound:

  1. One of the current drivers of the pound is the war in Ukraine, which has helped strengthen the US dollar due to its status as a safe-haven currency. The pound and the euro have fallen due to negative market risk sentiment. The euro has been affected more than the pound due to Europe’s connections to Russia. Europe is a key destination for Russia’s energy exports.
  2. The Bank of England and comments from its members such as those by its Governor Andrew Bailey, can have a considerable impact on the pound. Potential remarks by Bailey suggesting a modest set of rate hikes or the BoE striking a dovish and less aggressive tone, indicating a wait-and-see attitude and showing caution, could also drive the pound lower.
  3. The pandemic restrictions have eased, but any potential news about a new strain or concerns about Covid and new measures could push Sterling lower.
  4. Interest rates is another major driver of the pound and any signs that there will be less than those expected and priced in by markets, then the pound could fall.
  5. Supply issues have eased, but these have recently returned due to the war in Ukraine. Any potential shortages in the UK economy that could affect the manufacturing sector, will also be a significant factor that could create pound volatility.
  6. Higher energy prices have created unwanted price pressures and are affecting the poorest households who struggle with the cost-of-living squeeze.
  7. The health of the labour market and any data that shows underperformance could affect the British currency.
  8. In general, any economic data and news that demonstrate that the UK economy is struggling, is also negative for the pound.
  9. Brexit continues to create volatility as there are uncertainties about the future of the Brexit deal and unresolved issues with the Northern Ireland Protocol.

Good news that could boost the pound:

  1. Upbeat economic data and financial news that demonstrate that the outlook for the UK economy will be positive, could boost the British currency.
  2. If the Bank of England continues to be hawkish and positive about the economy and shows its intention to hike rates and tighten policy, then the pound will also strengthen.
  3. Any signs that will paint the PM in a negative light or question his authority and competence could affect the pound. For example, the “partygate” scandal had put pressure on the currency, when it occurred.
  4. Higher UK yields or government bonds (gilts) will support the pound. UK bonds are a good indicator of market sentiment for the UK, since interest rates, inflation rates and currency strength affect bond prices. There is a correlation between the BoE’s base rate and the return in investments. If the UK’s interest rate is higher than in other countries, the returns on UK bonds will be more appealing in comparison.
  5. Worries about a second referendum on Scottish independence have retreated, but if this returns then the pound will be affected.

There is a silver lining though to a weaker pound. A weaker pound is good news for UK exporters, as their goods become cheaper to overseas buyers. When the pound weakens, the FTSE100 index tends to rise, as a large proportion of profits for FTSE100 companies is made in US dollars. If the pound falls, then those dollar revenues are worth more when they are converted back into pounds.

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In worrying times like this, it is important for us to point out that we completely acknowledge the wider implications of international conflict. Our principle duty as a company is to ensure that our clients are aware of all of the factors that affect currency exchange rates, which sadly sometimes includes war. Our thoughts are with everyone who is being affected by this escalating situation, and our currency updates do not intend to diminish, ignore or undermine the true impacts of this conflict.

If the Ukraine conflict escalates, the pound will remain under pressure, economists at MUFG Bank said. The upcoming Federal Reserve (Fed) and Bank of England (BoE) monetary policy decisions could push the pound against the US dollar lower in the coming days, some analysts have warned.

On Monday, during early trading hours, European stock markets rose on hopes that peace talks between Russia and Ukraine could make progress. The GBP/USD pair also recovered from its daily low and climbed higher as risk sentiment recovered, pushing the safe-haven US dollar lower. Both sides have shown cautious optimism ahead of Monday’s negotiations, with a Russian delegate yesterday saying that there has been “substantial progress.” However, it is not clear how Russian president Vladimir Putin’s position has changed, since yesterday an attack on a major military base close to Poland’s border killed at least 35 people.

According to the Ukrainian general prosecutor’s office, ninety children have been killed and more than 100 wounded since Russia invaded Ukraine on 24 February. The highest number of victims are in the Kyiv, Kharkiv, Donetsk, Chernihiv, Sumy, Kherson, Mykolayiv and Zhytomyr regions, the statement said. Russia denies targeting civilians and has called the war a “special operation” to demilitarise and “de-nazify” Ukraine.

UK support for Ukraine

The British health secretary Sajid Javid said the Ukraine family scheme for refugees was “being made easier and more straightforward” from Tuesday. Talking to Times Radio, he said that “just over 3,000” visas had been granted through the programme. Javid said: “As well as that particular scheme, the extended family scheme being made easier and more straightforward by our online-only process from tomorrow, there’s the new homes for Ukrainian families scheme, which will also go live later this week.”

According to the government’s announcement on Sunday, as reported by Reuters, those who can offer a living space for refugees for at least six months could receive £350 a month. The "Homes for Ukraine" programme will have a website where individuals and organisations will be able to register by the end of next week. Those who offer a room or home for refugees will have to pass a criminal background check and show that their home meets required standards.

Central Banks

On Wednesday, we have the FOMC’s policy decision and on Thursday, the Bank of England’s decision. Both central banks are expected to increase their interest rate by 25bp. The market reaction will depend on their post-meeting statements and how optimistic or pessimistic the two banks are about the economic outlook.

Fed Chairman Jerome Powell pointed out that this Wednesday the Fed will possibly lift its interest rate from 0.25% to 0.5%, although financial markets expect a larger increase to 0.75%.

The BoE is widely expected to raise the Bank Rate from 0.5% to 0.75% on Thursday and 2% by year-end. BoE Governor Andrew Bailey had warned markets, even before the war in Ukraine, “not to get carried away” with their interest rate expectations. A cautious statement would push the pound lower, especially because the Fed is expected to deliver a hawkish decision on Wednesday.

Analysts believe that the GBPUSD and EURGBP will be sensitive to any important changes to the outlook for BoE rate hikes. Markets are currently pricing more than 5 hikes over the coming 6 months.

In the meantime, any new developments surrounding the Russia-Ukraine conflict will influence market risk sentiment.


In worrying times like this, it is important for us to point out that we completely acknowledge the wider implications of international conflict. Our principle duty as a company is to ensure that our clients are aware of all of the factors that affect currency exchange rates, which sadly sometimes includes war. Our thoughts are with everyone who is being affected by this escalating situation, and our currency updates do not intend to diminish, ignore or undermine the true impacts of this conflict.

The UK economy has grown faster than expected as the economic damage caused by the Omicron variant receded. Despite the positive news, the pound continued to slide lower, especially against the US dollar. Fears that the war in Ukraine will impact on UK growth and that inflation will rise further have pushed the pound lower. In the coming week, the Bank of England is expected to hike interest rates by a further 25 basis points. Investors will closely watch comments by the Bank’s policymakers when they deliver their decision as well as how each member voted which could affect the pound.


New figures on Friday released from the Office for National Statistics show that UK GDP grew by 0.8% in January, faster than economists expected, after contracting in December when ‘Plan B’ restrictions were introduced to fight the Covid-19 variant. According to the ONS, every sector grew in January, with services, production and construction up 0.8%, 0.7% and by 1.1%, respectively. As the ONS reported: “Output in consumer-facing services grew by 1.7% in the month, mainly driven by a 6.8% increase in food and beverage activities, while all other services also saw growth on the month, by 0.6%.”

ONS director of economic statistics Darren Morgan said: “All sectors grew in January with some industries that were hit particularly hard in December now performing well, including wholesaling, retailing, restaurants and takeaways. Computer programming and film and television production also had a good start to the year. While supply chain issues persisted in certain sectors, output in both construction and manufacturing grew for the third month running.”

Economic uncertainty due to Russia’s invasion of Ukraine

January’s recovery means the UK economy is now above its pre-pandemic levels, but the war in Ukraine poses a serious threat to recovery. Responding to today’s report, Chancellor of the Exchequer, Rishi Sunak, said: “We have provided unprecedented support throughout the pandemic, which has put our economy in a strong position to deal with current cost of living challenges. We are continuing to help people where we can, including through over £20bn of support this financial year and next. We know that Russia’s invasion of Ukraine is creating significant economic uncertainty and we will continue to monitor its impact on the UK, but it is vital that we stand with the people of Ukraine to uphold our shared values of freedom and democracy and ensure Putin fails.” The Chancellor is expected to provide much-needed support for UK households which are struggling with higher living costs. Economists have warned that the government’s package of a £200 energy bill rebate (repaid over five years) and a £150 council tax rebate for some households is not enough to alleviate the cost-of-living crisis.

What economists say about the GDP report today

Paul Dales of Capital Economics has said that the war in Ukraine and the cost-of-living squeeze will weigh on growth, despite January’s rebound. He said that from March and April households will begin to feel the blow due to higher energy prices and the war in Ukraine. Because of this, economic growth will slow down throughout the year.

KPMG UK chief economist Yael Selfin has also said that the conflict in Ukraine will hurt recovery: “Further headwinds for the UK economy are likely to arise from the elevated levels of uncertainty, tighter financial conditions, and disruptions to trade, potentially reducing GDP growth to 3.3% this year and to 0.8% next year.”


The sanctions and concerns about the supply of commodities, could revert some of the progress made by companies recently, as many UK firms have reported that supply chain issues have eased.

Russia – Ukraine conflict impacting on global economy

The sanctions on Russia have also affected the Russian economy which could enter into a deep recession.  In the global economy, the conflict has pushed commodity prices and inflation higher and hurt financial conditions and business confidence.

The ban on oil imports from Russia by the US and UK along with the widespread sanctions will be followed by more economic pressure on Russia by the US. According to reports from Reuters and Bloomberg, US president Joe Biden is expected to call later today for the end of normal trade relations with Russia, which will allow for increased tariffs on Russian imports.

In worrying times like this, it is important for us to point out that we completely acknowledge the wider implications of international conflict. Our principle duty as a company is to ensure that our clients are aware of all of the factors that affect currency exchange rates, which sadly sometimes includes war. Our thoughts are with everyone who is being affected by this escalating situation, and our currency updates do not intend to diminish, ignore or undermine the true impacts of this conflict.

The pound was lower against the US dollar amid a cautious market mood. The latest peace talks between Russia and Ukraine have failed, and the two sides have not yet reached a ceasefire agreement. The war and US inflation fears will boost the US dollar's haven demand. The pound is stronger against the euro, but if sentiment declines further then both currencies will lose value against the dollar. However, analysts believe the pound could rise against the euro. With uncertainty and the possibility of a breakthrough in the negotiations looking highly unlikely, the foreign exchange market will remain volatile.

Russia – Ukraine talks

No progress has been made after a meeting on Thursday between Ukrainian Foreign Minister Dmytro Kuleba and Russian Foreign Minister Sergei Lavrov in Turkey's Antalya. Ukraine’s foreign minister said he discussed a 24-hour ceasefire with his Russian counterpart who defended the invasion and said it was going as planned. The meeting is the first high-level contact between the two sides since Moscow invaded Ukraine at the end of February. While officials from Kyiv and Moscow have met previously, this is the first time Russia sent a minister for discussions.

Lavrov said Russia wants to continue the negotiations with Ukraine and underlined that Russia would not have started the war if the West approved “our proposal on security guarantees.” He added: “Until the end, we wanted to resolve the situation in Ukraine through diplomatic means.”

Market optimism could be hurt from the risk of a further escalation in tensions between Russia and the West, while investors are concerned about inflationary pressures’ impact on the global economic outlook. This will limit any potential gains for the pound against the US dollar, and with little economic releases from the UK, the British currency will be driven by US dollar dynamics. 


The euro held most of its gains from yesterday as investors await the latest ECB policy decision for  fresh stimulus. The war in Ukraine might not push the ECB to change its hawkish stance especially when inflation is so high. The risk of a further escalation of tensions between Russia and the West could push the euro lower.

Bank of England

Uncertainty from the invasion of Ukraine will limit the number of rate hikes by the Bank of England (BoE) despite concerns for embedded inflation. Economists at Westpac note that the GBP/USD pair is at risk of suffering a sharp decline. Concerns about the cost of living will limit any upside potential for the pound and further rate rises. They said: “BoE had cited the cost-of-living pressures as a reason for a more gradual tightening path, but they will also be unable to ignore surging inflation. The net outcome is likely to be a lower and slower path of withdrawing accommodation.”

Global Inflation concerns

Markets remain concerned with rising inflation and commodity prices which could lead to a global recession. A global growth slowdown will support the safe-haven US dollar.

The euro however found support from the prospect of EU member states issuing a joint bond to finance increased defence spending and ease the impact of the energy crisis. The European Council will meet today in Versailles, France and more details might become clear. Analysts noted that such plans could end up being steeped in bureaucracy.

If the war in Ukraine continues, the euro will be lower against commodity and safe-haven currencies. Volatility will continue in the currency markets, while the exclusion of Russian commodity exports from global markets will increase inflation and require the establishment of new supply chains and routes.

The pound rose against the US dollar, and the euro strengthened as global market sentiment has improved. With improved global investor mood and news that European countries could issue a joint bond to finance new defence spending and the area’s energy crisis, the euro rose. Stock markets rallied following the positive market sentiment.  

Reports suggesting that Ukraine won’t insist on NATO membership has also boosted hopes of a de-escalation of the crisis ahead of Thursday's meeting between Russian Foreign Minister Sergei Lavrov and his Ukrainian counterpart Dmytro Kuleba.

For the moment, risk sentiment is the main market driver, and the pound could extend its recovery if the situation improves.

Russia has agreed to a new 12-hour ceasefire to allow civilians to flee some of the most affected areas in Ukraine, according to Ukraine's Deputy PM Iryna Vereshchuk.

Bank of England

On Tuesday, the British government announced that it will slowly reduce its imports of Russian oil and oil products by the end of this year. Economic activity will be hurt by the rising oil prices, Bank of England (BOE) Monetary Policy Committee Member Silvana Tenreyro said at a discussion hosted by Britain's Economic Research Council. She added that there was no immediate evidence of a wage-price spiral in the UK. She explained that policymakers would begin to review economic activity at March's Monetary Policy Committee meeting and when the BoE next updates its forecasts in May. She noted: "Recent developments will intensify the terms of trade shock that we were already experiencing, so will push up inflation and have a negative impact on activity. How exactly? That's the job we will start next week.”

Financial markets still expect the BoE to raise rates from 0.5% to 0.75% on the 17th of March, and as high as 1.5% by August in order to control surging inflation from becoming rooted.

She clarified that if the UK's action on Russian oil imports weighs on growth, then the BOE could avoid tightening monetary policy, but such a move could hurt the pound.


The euro rose on Wednesday due to improved sentiment and news that the EU Commission will announce plans of EU countries jointly issuing bonds to finance energy and defence spending. The move is seen as supportive of the common currency. The prospect of joint bond issuance has boost sentiment and helped to push the euro higher.

The plan for the jointly issued debt will be announced at Thursday's meeting of the European Council where leaders will meet to discuss the ongoing war in Ukraine. Bloomberg reported that the EU Commission could issue bonds and then send the funds to member states in the form of concessionary loans to finance spending in those countries.

The euro dropped against the dollar, pound and other major currencies since the war in Ukraine began due to diminished expectations about the Eurozone’s economic growth. The euro and European currencies have been hurt by the war and could drop even further if the situation worsens. Markets will remain highly sensitive to news and developments relating to the war in Ukraine. The pound will remain under pressure against the US dollar but supported against the euro if the conflict continues.

In worrying times like this, it is important for us to point out that we completely acknowledge the wider implications of international conflict. Our principle duty as a company is to ensure that our clients are aware of all of the factors that affect currency exchange rates, which sadly sometimes includes war. Our thoughts are with everyone who is being affected by this escalating situation, and our currency updates do not intend to diminish, ignore or undermine the true impacts of this conflict.

The pound plummeted amid dampened market mood and demand for the safe-haven US dollar, following an escalation in the Ukraine war.

The increased appetite for safe-haven assets like the US dollar, follows the escalation of the Russia-Ukraine conflict and the possibility of the US banning oil imports from Russia. On Monday, oil futures reacted to the headlines, with Brent oil crude surging above $139 a barrel, while US Crude oil rose to near $130. In the meantime, the US dollar dominated markets and gained against most G8 currencies. Other safe-haven currencies like the Swiss franc and the Japanese yen fell.

Oil and gas import ban

During the weekend, the US Secretary of State Blinken announced that the US and allies were in discussions relating to a Russian oil import ban, but later Bloomberg reported that the “US is weighing acting without allies on a ban of Russian oil imports, although the timing and scope of any ban is still fluid.”

At a Downing Street press conference on Monday, the UK Prime Minister Boris Johnson said: “I don’t think Tony Blinken was wrong in the sense that we are all together now moving very, very fast and seeing that something that, perhaps three or four weeks ago, we would never have considered is now very much on the table. We have to consider how we can all move away as fast as possible from dependence, reliance, on Russian hydrocarbons, Russian oil and gas. Everybody is doing that, everybody is on the same journey. Some countries will find it faster and easier than others, that’s all. But we’re going to do it together and we are going to work together on making sure that we all have the substitutes and the supplies that we need.”

Dutch prime minister Mark Rutte, speaking at the same conference, said banning Russian oil and gas would be a “step-by-step process,” “diligent and not overnight.” He said: “We have to make sure to deleverage our dependency on Russian gas, on Russian oil, while acknowledging at the moment that the dependency is, to a certain extent, still there.” It will have “enormous consequences” if we stop doing business with Russia and it would “undermine supply chains the world over, particularly in Europe. It would also have an impact on Ukraine itself.”

Senior US officials have reportedly travelled to Venezuela secretly in the weekend to unfreeze hostile relations with a top oil exporter who is also Vladimir Putin’s top ally in Latin America. The exporter’s re-entry into the US energy markets could alleviate supply issues following a possible oil embargo on Russia. The outcome of the talks with Nicolas Maduro’s government is not yet clear and the visit follows months of communications by American lobbyists, Norwegian negotiators and oil executives who have tried to encourage Biden to reach out to Maduro.

On Monday, the Ukrainian president, Volodymyr Zelensky, asked the international community to boycott Russian exports and supply to Russia. He said: “If they do not want to comply with civilised rules, they should not receive goods and services from civilisation either. Let the war feed them.” He also requested from western allies to send aircraft to Ukraine for his air force. To those who commit atrocities against Ukraine's civilians he said there will be no forgiveness and accused invading Russian troops of deliberate murder. As he warned, "There will be no quiet place on Earth for you. Except for the grave," the Ukrainian president said.

Euro shock

Currency markets continued to be volatile with the currencies of energy exporting countries remaining strong while those of net importers being hit. The war in Ukraine has pushed the euro lower and economists say the rising cost of oil and gas will also hurt the Eurozone's economy given its significant dependence on Russia's energy industry. The European Union’s “growing gas crisis” has led her to push for energy savings and to renewable power.

Gas and electricity prices are expected to remain high and volatile as the situation has deteriorated and the EU is trying to grapple with its gas dependency after Russia’s invasion of Ukraine. The EU imports 40% of its gas from Russia, for more than 15 years. According to reports, EU competition authorities are investigating the Russian state energy company Gazprom following suspicions for its behaviour as its EU storage facilities are only 16% full, compared with 44% for non-Gazprom storage, suggesting the Kremlin is using gas as a geopolitical tool.

Concerns of a Eurozone economic slowdown could push the European Central Bank to reconsider the rate at which it intends to normalise monetary policy, which could weigh on the Euro. The central bank will meet on Thursday.

In worrying times like this, it is important for us to point out that we completely acknowledge the wider implications of international conflict. Our principle duty as a company is to ensure that our clients are aware of all of the factors that affect currency exchange rates, which sadly sometimes includes war. Our thoughts are with everyone who is being affected by this escalating situation, and our currency updates do not intend to diminish, ignore or undermine the true impacts of this conflict.

The pound has recovered against the US dollar as the Ukraine crisis has worsened. It plunged following news that Russian troops were shelling Europe's largest nuclear power plant in Ukraine. The high uncertainty has eased off slightly, however, the risk-off mood remains as investors await the response of western nations to the Russia-Ukraine escalation. Later the release of the US Non-Farm Payrolls (NFP) will also provide direction to the US dollar. However, as analysts have noted, the  two-year American labour market recovery will be less important to markets on Friday than the war in Ukraine, which will affect the US economy and Federal Reserve rate policy.

Pound to US dollar exchange rate (GBP/USD)

A fresh wave of global risk aversion was triggered after Russian troops shelled a nuclear power plant in Ukraine in the early part of trading on Friday which boosted the safe-haven US dollar. The risk sentiment stabilised after the International Atomic Energy reported that there has been no change in radiation levels at the Zaporizhzhia nuclear power plant site, the largest of its kind in Europe. Ukraine's emergency services said that the fire at the nuclear plant was put out and Ukrainian authorities said the reactors were safe. However, the incident highlighted the dangers to a nuclear plant amidst the ongoing conflict. Reuters reported that Russian forces have captured the power station, citing Ukrainian authorities.

The incident, and weaker US Treasury bond yields have limited trading interest for the greenback and helped the pound recover. However, the risk of a further escalation in the Russia-Ukraine conflict will keep investors cautious.

Investors will focus on the release of the US monthly jobs data which will be released during the early North American session. While the report could provide some impetus to the GBP/USD pair, markets will remain focused on headlines relating to the ongoing Russia-Ukraine war.

Pound to euro exchange rises (GBP/EUR)

The Pound to euro exchange rate rose in the early hours of Friday morning after a fire broke out at Zaporizhzhia nuclear power plant in Ukraine. The incident was reported around midnight and push Central and Eastern European currencies and the euro lower. The euro fell against the US dollar and against the pound. The pound-euro exchange rate traditionally reflects the relative performance of EUR/USD and GBP/USD.

Jane Foley, head of FX strategy at Rabobank clarified that the pound vs. the euro is better positioned in the coming months but it will remain lower than commodity currencies. Shaun Osborne, chief FX strategist at Scotiabank said that “Gyrations in money markets and the risk-off mood amid developments in Ukraine remain the main driver of GBP price action and are bound to remain so until the BoE’s decision in mid-March; we expect another 25bps increase then.”

Higher commodity prices

Commodity markets have been rising and could record the biggest weekly gains in years after the closure of Ukrainian ports and strict sanctions against Russia, which have led buyers of oil and gas, crops and metals to look for substitutes. Russia and Ukraine together account for around 30% of global wheat supplies, and Russia is a major exporter of oil, gas, aluminium, and nickel among other metals. This is obviously bad news for consumers as commodity prices have risen and people around the world will have to pay more for energy and food in the coming months. Higher oil, metal and crops prices will translate into higher transport and production costs, which will in turn push all goods prices up.

In worrying times like this, it is important for us to point out that we completely acknowledge the wider implications of international conflict. Our principle duty as a company is to ensure that our clients are aware of all of the factors that affect currency exchange rates, which sadly sometimes includes war. Our thoughts are with everyone who is being affected by this escalating situation, and our currency updates do not intend to diminish, ignore or undermine the true impacts of this conflict.

The pound has gained against both the euro and the US dollar as UK government bond yields rose and investor sentiment improved amid media reports that Ukraine and Russia will try to negotiate a ceasefire. However, there is still scepticism about Russia's willingness to find a diplomatic solution to the conflict, as Russian forces continue to move towards Kyiv. Russian foreign minister Lavrov noted that "We are ready for a dialogue based on mutual respect," but markets remain cautious. Ukraine has said Russia must stop bombing Ukrainian cities before they make any progress with the negotiations.

Possible ceasefire

It has been reported that Russian negotiators had said a ceasefire was on the agenda at talks with Ukraine. A Ukrainian delegation has left for a second round of talks with Russia, Ukrainian presidential adviser Mykhailo Podolyak told Reuters on Wednesday. Russian news agencies reported that Russia's negotiators expect Ukrainian officials to arrive in Belarus to start the next round of negotiations on Thursday morning.

Latest news on the Russia-Ukraine crisis

While there are various conflicting reports, Russian forces are in control of the local government building in the Black Sea port of Kherson, according to its mayor, Igor Kolykhaiev. Following missile strikes, there were reports of explosions in Ukraine’s capital, Kyiv, and second city, Kharkiv, overnight and on Thursday morning. The important Sea of Azov port city of Mariupol is reportedly surrounded by Russian troops.

Britain’s defence ministry said that the strong Ukrainian resistance has helped to delay the Russian advance on Kyiv along with other problems such as mechanical breakdown and congestion and was still more than 30km from the centre of the city.

The head of the United Nations refugee agency has said that more than one million people have fled Ukraine since the invasion last week.

The international criminal court (ICC) is opening an investigation into possible war crimes after 38 countries reported atrocities.

Ukraine’s emergency service reported that around 350 Ukrainian civilians have been killed and more than 2,000 injured. According to Ukraine, around 7,000 Russian troops had been killed in the first six days of Moscow’s invasion. Moscow said only 498 Russian soldiers had died in Ukraine since the start of the invasion.

On Wednesday, 141 of the 193 member states of the UN general assembly voted to condemn Russia’s invasion of Ukraine and called for the immediate withdrawal of its forces. The US has also accused Russia of waging a war against media and blocking independent news outlets.

Russia’s central bank has imposed a 30% commission on foreign currency exchanges.

Market reaction

The war and sanctions on Russia have rattled markets and pushed European G10 currencies such as the pound, euro, krone and krona lower. Any resolution or positive development to the conflict could help these currencies recover.  

While the pound has fallen due to the situation in Ukraine, it can recover and appreciate as market mood improves and global risks rebound.

Interest rate markets

On Tuesday, the yield paid on UK government bonds (gilts) fell as a response to a fall in the number of interest rate hikes that markets now expect from the Bank of England in 2022 and 2023. The pound responds well when these yields rise and falls when they fall.

The market has reduced its expectations for Bank of England rate hikes in 2022 and 2023 as investors fear slower economic growth, rising inflation and increasing geopolitical uncertainty. This also pushes bond yields lower. If markets continue to be of the opinion that the Bank of England will raise interest rates faster and further than the ECB in 2022 and 2023, then the pound and UK gilt yields will remain supported. In general, most economists believe that market mood will recover once there is a positive resolution to the Russia-Ukraine conflict which should support bond yields and the pound.