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US dollar gains on Russia/Ukraine tensions

Monday 24 January, 2022

Daily Currency Update

Sterling has slipped a little this morning as headlines continue to be dominated by rising tensions between Russia and Ukraine, with rumours circulating that Russian President Vladimir Putin is set to invade the former Soviet country and install a puppet leader. Despite last week’s rapid uptick in UK inflation which saw CPI hit 5.4%, its highest level in nearly 30 years, the pound is lower this morning as market jitters lead investors to seek the safe haven US dollar. The chances of a rate hike from the Bank of England at next Thursday's monetary policy decision is now about 90% and with many expecting inflation to head towards 6% before levelling off there is a good chance that BoE Governor Andrew Bailey could signal that this could be the first of a series of hikes throughout 2022. On the data front it’s a relatively quiet week from the UK with the main event likely to be the publication of the much anticipated report from Sue Gray who has been investigating the numerous parties that occurred at Downing Street when much of the country was living under strict restrictions on socialising. GBP/USD sits around 1.3535 and GBP/EUR is back down to 1.1950.

Key Movers

This week’s big event is Wednesday’s monetary policy decision from the Federal Open Market Committee in the States. With US inflation currently at a 40 year high of 7% there is pressure on Fed Chair Jay Powell and the rest of the FOMC to act to tackle rapidly rising prices which is squeezing consumer spending power. The consensus is that the current quantitative easing programme will be wound up by March with the possibility that rates will also be hiked by up to 0.5% at the same meeting. Messaging around the future path of rate hikes will be key to the dollar’s direction as well as whether there are any clues on when the Fed will start to sell back to the market the bonds that it bought as part of its quantitative easing programme, a process that many have dubbed "quantitative tightening." Away from America, this morning has seen some solid PMI numbers from Germany with the manufacturing and services numbers coming in at 60.5 and 52.2 respectively, comfortably above forecast. EUR/USD trades around 1.1335 and USD/JPY is down to around 113.55 highlighting the risk off mood as investors buy the super-safe haven Japanese Yen.

Expected Ranges

  • GBP/USD: 1.3480 - 1.3620 ▼
  • GBP/EUR: 1.1905 - 1.2020 ▼
  • GBP/AUD: 1.8840 - 1.9000 ▲
  • EUR/USD: 1.1270 - 1.1400 ▼