Over the course of this week so far the rate has been quite bouncy but has largely committed to its current downwards trend, with most days ending in a loss. This comes as a basket of external factors have seeped into the market, manipulating both currencies in different ways. One of the most prevalent being the current war in Ukraine shaking up global equity markets and causing investors to look at mitigating their risk. In doing so the Dollar attracted a flurry of buyers due to its safe-haven status, excelling the currency past its counterparts such as the Pound. To make matters worse, losses for the Pound were exacerbated at the start of the week against the Buck as a speech from the Bank of England’s Governor Andrew Bailey peeled back GDP growth expectations, worrying investors. This adds to the current fears of investors when evaluating the UK economy as it is struggling greatly with one of the worst cost of living crises’ in decades, hampering the Pound quite greatly. In recent days the Pound managed to claw back some lost ground as tensions in Ukraine slightly improved as negotiations between reported to have went reasonably well, slightly decreasing the need for the Dollar’s safe haven status. However, these gains proved to be unsustainable and most of which has since been lost as the Pound finds itself still struggling.
Due to the sensitivity of these external circumstances, the rate has been experiencing heavy volatility making it increasingly difficult to presume where the pair will find itself in the near future. However, given that a diplomatic solution between Russia and Ukraine is not off the table with Putin saying they will reduce the amount of troops in areas near Kiev, the Pound might find itself making gains against the Dollar. Until this happens it is likely that the Pound will continue to face strong headwinds against the Dollar, likely keeping the rate in its current regions. As for other factors, analysts will digest an array of data in the US tomorrow, potentially giving the Buck more headroom to advance its gains as long as statistics come across as favourable. With the Pound not expecting any market moving data releases for the coming days the currency could find itself particularly sensitive to developments.
Looking back over the course of this week, the Pound has fallen victim to the Euro’s recent strength, briefly pushing the rate all the way down to its lowest levels seen this year. This came as the Euro was buoyed by positive comments regarding relations between Ukraine and Russia. An apparent breakthrough occurred in peace talks between the two nations as Moscow promised to ‘radically reduce military activity’ in areas such as Chernihiv and Kyiv. Ukrainian President Volodymyr Zelenskyy also proposed that their nation takes on a neutral status as long as they have certain countries that act as security guarantors. News of this helped attract buyers into the Euro as, up until now, it was heavily hampered by the ongoing conflict. To add to the Pound’s struggle, the outlook for the UK economy has taken a large blow following the current cost of living crisis plaguing many households and businesses. On the contrary, we are not the only nation experiencing this as many economies in Europe are also feeling the heat as prices surge. For example, Germany is on the brink of a recession as prices have reached unsustainable levels, sounding alarm bells to officials, and slowing down lots of the upwards movement by the Euro. Looking back at today, the Pound has shown its resilience with it so far climbing very sharply after seemingly bouncing off of a historic point of support for the rate and finding some room to breathe but will likely be met with heavy resistance, likely slowing down upwards movement.
Looking ahead, the rate could struggle to sustain these gains with the Pound expected to run out of fuel in its current uphill sprint. This is mainly down to the UK lacking domestic data for the rest of this week and well into next week. This leaves the currency particularly vulnerable to changes and developments that might come out of Ukraine regarding peace talks. Any further progress in the Ukraine-Russia peace talks could boost the Euro, and with rumours of a presidential meeting between both countries point to a more diplomatic turn of events, bringing the end to the war that small step closer. It may be possible that the rate gives back most of the gains seen so far today and stays in its current regions for the time being.
Weekly Update published by Frank Brightman (04/04/2022)