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 GBP/USD pair dropped as traders preferred buying US dollars following reports that Russian forces have entered the Obolon district in Kyiv as the invasion enters day two. The incoming news surrounding the Russia-Ukraine conflict have kept investors on edge, which, in turn, offered support to the safe-haven greenback and attracted selling around the GBP/USD pair. Economists at Société Générale expect the GBP/USD to enjoy a rebound. However, looking at the recent market action, the pound is one of the more vulnerable currencies in the face of the Russia-Ukraine war and unless the market mood improves ahead of the weekend, the pound will remain under pressure.

Prime Minister Boris Johnson’s call to disconnect Russia from the SWIFT global payment system should limit any optimistic move in the markets and will weigh on the pound to US dollar exchange rate. Bruno Le Maire, the French Minister of the Economy, Finance and the Recovery, said that cutting off Russia from SWIFT is a possibility, but this would be as a last resort. Germany, Italy and a number of other European nations which rely heavily on Russia for gas opposed the sanction.

Russia - Ukraine conflict escalates

The general staff of the armed forces of Ukraine has said Russia is using the Gomel airfield in Belarus in preparation of an assault on Kyiv after the Hostomel military airport near the capital was damaged. In a statement, the military department said on Facebook that Russian forces were advancing on the city from several directions as Ukrainian forces fought around Mariupol in the south and Kharkiv in the north-east of the country.

Al Jazeera’s Andrew Simmons, reporting from Kyiv, says the situation is rapidly “escalating in every respect”: “That is not just in the air but on the ground as well – there are armoured [Russian] columns heading towards the city. There is real anger in the air … and the hatred for [Russian President Vladimir] Putin is palpable. Furthermore, there are a number of places in the city where people can get a gun of their choice, particularly an AK47, to defend themselves and that is the policy of the presidency. Zelenskyy wants everyone to fight.” He added: “What we are going to find is that when these Russian forces reach the capital there is likely to be fierce resistance. The overall mood is one of horrendous fear of what’s going to happen next.”

UK Sanctions

The UK announced sanctions on Russia late Thursday, denying the country access to the City of London and intending to freeze all major Russian banks’ assets and exclude them from the UK financial system. As a result, the pound could weaken as funds could be repatriated by potentially sanctionable individuals, analysts have warned. With Russians holding significant UK assets analysts expect the pound to be under pressure.  

Prime Minister Johnson said there was a possibility to remove Russia from the Swift international payment system, which could also act as a headwind for the pound. Sterling will remain at risk of an exit of money flows.