The Euro has been dramatically affected and has reached low levels that had not been seen since 2016, meanwhile traders are trying to decipher how deep the conflict of Russia and Ukraine will impact the global economy and more specifically the European region.
The Bank of England will potentially hike interest rates again for the third time in consecutive meetings. On the other hand, is seems less likely to have a rate hike coming from the European Central Bank by the end of the year, specially, after the conflict between Russia and Ukraine broke out over a week ago.
“Market expectations about the potential for rate hikes from both the BoE and the ECB this year have been pared back since the Russian invasion of Ukraine,” FX strategist Jane Foley said.
“However, while the market still anticipates that the BoE could follow through with a third consecutive rate hike at its March meeting, the doves maintain the upper hand at the ECB,” Foley added.
Mario Centeno, ECB Governing Council member warned on Wednesday that Russia’s invasion of Ukraine could lead to a rapid increase of inflation and a very slow economic growth in Europe.
The euro fell to its lowest level versus the pound since July 2016 reaching as low as 82.30 pence, then it reached back up, to about 82.57 pence, however current data suggests that it will continue in a bearish trend.
Chris Turner, ING’s Global Head of Markets said sterling might also be being supported as Britain-based energy companies look to cut their exposure to Russia. Turner also said: “It will also be hard to know, but some GBP buying/hedging relating to the divesting of Russian assets in the oil and gas sector may be helping GBP too,”
BP said this week it would exit its stake in Russian state-controlled energy firm Rosneft, while Shell (SHEL) said it intended to exit its partnerships with entities of Russian gas company Gazprom (GAZP).
According to the final IHS Markit/CIPS services Purchasing Managers Index. Britain’s services sector expanded at its fastest pace since June of 2021.
Sterling was down 0.5% against the dollar at $1.3337while the dollar was supported by comments from Federal Reserve Chair Jerome Powell in which he stated the Fed will increase its interest rates by about 25 bps to start, also warned that if inflation is not contained as expected they will increase the rates higher. This created a reaction that sent the pound (GBP) down to $1.321 dollars, though this number is not alarming is a clear indication of what can be expected in the near future.