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What the Russian invasion means for GBP, EUR, USD

What the Russian invasion means for GBP, EUR, USD

We open this morning to news of a full-scale Russian invasion of Ukraine. This news has led to oil prices surging above $100bbl for the first time since September 2014 and as expected, safe haven currencies are in high demand amid the increased level of risk aversion. GBP tumbled against the dollar as the greenback gained around 1% against the euro and sterling last night. The Yen, another safe-haven currency, also rose by over 1%.

BoE Governor Bailey yesterday also pushed back against current market expectations of aggressive tightening from the BoE. He noted that the “key message to markets was not to get carried away” with regards to the path of interest rate hikes.

As trading gets underway this morning, the firmer tone to the dollar is evidenced by EUR/USD opening back below the midpoint of the $1.12-1.13 range and GBP/USD changing hands in the top half of $1.34-1.35. EUR/GBP remains tightly range bound, in the lower half of the 83-84p corridor.

As we look ahead today, there is a relatively quiet macro-calendar. However, a slew of key central bankers are due to make prepared remarks from the ECB, Fed and BoE. Developments in Ukraine though, are likely to dominate and therefore will be the key driver of market sentiment today. From a GBP perspective, if the situation escalates further this will drive GBPEUR higher (and GBP vs other European CCYs) and drive GBPUSD lower.

Whilst we are discussing the financial and economic impact of war, connecting the sad news of what is occurring in Ukraine with currency movements; all of us at Currency UK are very aware of the real and more important human impact that war has. Our thoughts are with those that are being directly impacted.

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