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Sterling slips and stocks slump on Russia/Ukraine standoff

Tuesday 25 January, 2022

Daily Currency Update

It was bad day for the pound yesterday as it fell against both the US dollar and euro as tensions between Russia and Ukraine continued to ratchet up. Stock markets around the world suffered huge falls with investors taking money from riskier assets and parking their cash in the traditional safe havens of the Japanese Yen, Swiss Franc, US dollar and German and US Government bonds. Germany's DAX stock exchange fell nearly 800 points from around 15600 to close to 14800 as concerns over a potential conflict and the impact it could have on the country’s energy supplies weighed on the index. GBP/USD fell from around 1.3550 to bottom out at around 1.3440 yesterday afternoon before paring some of its losses. GBP/EUR briefly fell under 1.19 however it has also regained some of its poise and is currently around 1.1935. As well as the escalating tensions over a possible Russian invasion of Ukraine, markets are fearing what could come from tomorrow night’s US Federal Reserve monetary policy decision with the Fed having to combat inflation that is at a 40 year high. Domestically we still await Sue Gray's report into parties at Downing St with news that Boris Johnson reportedly had a birthday party during lockdown emerging yesterday.

Key Movers

With 100k Russian troops positioned to the north, east and south of Ukraine tensions in Eastern Europe are at levels not seen since Russia's annexation of Crimea in 2014. Russian President Vladimir Putin seems to be trying to force NATO into not expanding its alliance further into former Soviet states. Stock markets are seeing drops not witnessed since the outbreak of the Coronavirus pandemic as a result. Things seem to have stabilised for the time being this morning however should the aggressive rhetoric between the two sides turn even more hostile then we could see further drops in equities. As mentioned earlier, tomorrow evening sees the US Federal Reserve publish its latest monetary policy decision with an end to its bond buying programme expected to be completed by March. There is a growing school of thought that March will likely also see the first of several rate hikes from the Fed to control soaring prices in the States. With borrowing costs set to rise this will not be welcome news for markets who have grown accustomed to the accommodative financial support since the pandemic. However it seems Chairman of the Federal Reserve Jay Powell will likely again signal that this is coming to an end and we should expect borrowing costs to rise as we go deeper into 2022 and beyond. EUR/USD sits at 1.1295.

Expected Ranges

  • GBP/USD: 1.34 - 1.3560 ▼
  • GBP/EUR: 1.1870 - 1.1970 ▼
  • GBP/AUD: 1.8820 - 1.8965 ▲
  • EUR/USD: 1.1240 - 1.1365 ▼