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.

As the Russia – Ukraine conflict intensifies, the pound will remain vulnerable with investors preferring safe-haven currencies such as the US dollar, at least in the near term.

Russian president Vladimir Putin has responded to what he has called “aggressive statements” by NATO countries by ordering his military to put nuclear deterrence forces on high alert. The order was condemned by the US which stated that the Russian president was “manufacturing threats that don’t exist in order to justify further aggression.”

How markets have responded

The rouble is expected to plummet at least 25% on Monday, reflecting the strict sanctions announced by the US and European Union over the weekend. The European Central Bank said on Monday morning that Sberbank Europe, which is a fully owned subsidiary of Sberbank Russia, and is majority owned by the Russian state, is expected to fail.

Crude oil and gas prices are soaring in response to the economic sanctions against Russia. Markets are worried that Russia could turn off its gas supplies to Europe, but Gazprom said it was shipping gas to Europe via Ukraine. A spokesperson for Germany’s largest power producer RWE, which receives gas from Gazprom, confirmed to Reuters that gas was flowing from Russia as normal.

Other commodities have also risen. Aluminium reached a new high on the London Metal Exchange. Chicago wheat futures had their biggest one-day gain in a decade, corn prices rose 4% and soybeans were 2.6% higher. According to Reuters, Russia and Ukraine together account for almost 30% of global wheat exports and a fifth of the world’s corn supply.

Spot gold was up to $1,901 an ounce as investors turned to safe-haven assets, including the dollar.

Ukraine and Russia talks have begun

Talks between Ukraine and Russia have begun, and Ukraine has said that it hopes for an “immediate ceasefire and withdrawal of Russian troops” following the negotiations. Its delegation includes high-ranking officials, but not its president Volodymyr Zelenskiy.

The Kremlin has declined to comment on the expected outcome of the negotiations, but Russian negotiator Vladimir Medinsky has said Russia wants to reach an agreement that will be to the benefit of both sides.

UK economic outlook

With the ongoing war and international sanctions against Russia, economists have revised lower their UK economic growth forecasts with initial assessments showing that the UK has little direct exposure to Russia. The main economic problems are the surging oil and gas prices.

The outlook for the UK economy is now gloomier due to the Russian invasion of Ukraine and Chief UK economist at Pantheon Macroeconomics, Samuel Tombs has said that they have hiked their forecast for the peak rate of CPI inflation in April to 8.0%, from 7.7%.

The UK economy won’t be hugely impacted from UK and international sanctions on Russia as analysts at Capital Economics say that only $3 billion (0.1%) of the UK banking system’s foreign claims are engaged in Russian banks, much smaller than those of Germany, France and Austria. Bank of England Governor Andrew Bailey also said last week to the Treasury Committee that "the UK banking system’s exposure to Russia is very low."

UK Business and Energy Secretary Kwasi Kwarteng on Monday said "unlike Europe, we're not reliant on Russian gas. But like others, we are vulnerable to high prices set by markets."

If there is no breakthrough in peace negotiations, commodity prices will rise sharply. With higher gas prices and global food prices rising, a small depreciation of Sterling will also boost the overall CPI inflation, said Samuel Tombs.

The Bank of England will be sensitive to any further signs that higher inflation will boost higher price expectations or faster wage growth. Capital Economics expects the inflation outlook to prompt further hikes to 1.25% this year. But Pantheon Macroeconomics remains cautious as it believes UK wages will struggle to keep up with inflation. They expect the Monetary Policy Committee to increase the Bank Rate only to 1.00% by the end of this year.

As the Russia – Ukraine conflict intensifies, the pound will remain vulnerable with investors preferring safe-haven currencies such as the US dollar, at least in the near term.

Russian president Vladimir Putin has responded to what he has called “aggressive statements” by NATO countries by ordering his military to put nuclear deterrence forces on high alert. The order was condemned by the US which stated that the Russian president was “manufacturing threats that don’t exist in order to justify further aggression.”

How markets have responded

The rouble is expected to plummet at least 25% on Monday, reflecting the strict sanctions announced by the US and European Union over the weekend. The European Central Bank said on Monday morning that Sberbank Europe, which is a fully owned subsidiary of Sberbank Russia, and is majority owned by the Russian state, is expected to fail.

Crude oil and gas prices are soaring in response to the economic sanctions against Russia. Markets are worried that Russia could turn off its gas supplies to Europe, but Gazprom said it was shipping gas to Europe via Ukraine. A spokesperson for Germany’s largest power producer RWE, which receives gas from Gazprom, confirmed to Reuters that gas was flowing from Russia as normal.

Other commodities have also risen. Aluminium reached a new high on the London Metal Exchange. Chicago wheat futures had their biggest one-day gain in a decade, corn prices rose 4% and soybeans were 2.6% higher. According to Reuters, Russia and Ukraine together account for almost 30% of global wheat exports and a fifth of the world’s corn supply.

Spot gold was up to $1,901 an ounce as investors turned to safe-haven assets, including the dollar.

Ukraine and Russia talks have begun

Talks between Ukraine and Russia have begun, and Ukraine has said that it hopes for an “immediate ceasefire and withdrawal of Russian troops” following the negotiations. Its delegation includes high-ranking officials, but not its president Volodymyr Zelenskiy.

The Kremlin has declined to comment on the expected outcome of the negotiations, but Russian negotiator Vladimir Medinsky has said Russia wants to reach an agreement that will be to the benefit of both sides.

UK economic outlook

With the ongoing war and international sanctions against Russia, economists have revised lower their UK economic growth forecasts with initial assessments showing that the UK has little direct exposure to Russia. The main economic problems are the surging oil and gas prices.

The outlook for the UK economy is now gloomier due to the Russian invasion of Ukraine and Chief UK economist at Pantheon Macroeconomics, Samuel Tombs has said that they have hiked their forecast for the peak rate of CPI inflation in April to 8.0%, from 7.7%.

The UK economy won’t be hugely impacted from UK and international sanctions on Russia as analysts at Capital Economics say that only $3 billion (0.1%) of the UK banking system’s foreign claims are engaged in Russian banks, much smaller than those of Germany, France and Austria. Bank of England Governor Andrew Bailey also said last week to the Treasury Committee that "the UK banking system’s exposure to Russia is very low."

UK Business and Energy Secretary Kwasi Kwarteng on Monday said "unlike Europe, we're not reliant on Russian gas. But like others, we are vulnerable to high prices set by markets."

If there is no breakthrough in peace negotiations, commodity prices will rise sharply. With higher gas prices and global food prices rising, a small depreciation of Sterling will also boost the overall CPI inflation, said Samuel Tombs.

The Bank of England will be sensitive to any further signs that higher inflation will boost higher price expectations or faster wage growth. Capital Economics expects the inflation outlook to prompt further hikes to 1.25% this year. But Pantheon Macroeconomics remains cautious as it believes UK wages will struggle to keep up with inflation. They expect the Monetary Policy Committee to increase the Bank Rate only to 1.00% by the end of this year.