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Geopolitical events continue to dominate markets

Tuesday 12 April, 2022

Daily Currency Update

The Ukraine/Russia conflict continues to dominate proceedings as sterling remains subdued. Monday saw very little data for the UK, and only ongoing concerns around how the UK economy will fare with rising inflation and slowing growth. UK households are to see the biggest squeeze in disposable income in decades, and with inflation soaring, the Bank of England appears to be stuck between a rock and a hard place. All eyes in the UK are on Wednesday's CPI release. Last month saw a 6.2% posting, a 30-year-high for UK inflation, and if a forecasted 6.7% is seen, the job of Andrew Bailey and his central bank members becomes ever harder. Increasing interest rates further is the only real way to stem the inflation tide, but do that and the central bank threatens to plunge UK households into further troubles as mortgage costs, often the biggest cost for a household, increase further. Ironically, a strong UK CPI posting on Wednesday could therefore be negative for the pound.

Key Movers

Russia is said to be amassing troops in the eastern Donbas region of Ukraine for a new assault on the port of Mariupol, as the conflict looks to intensify. Capturing this city would allow Moscow to attempt to encircle the main Ukrainian force in the east, and Austrian Chancellor Karl Nehammer said, following talks in Moscow on Monday, that an offensive in the east was "being prepared on a massive scale". The USD remains on the front foot, as this news has sent a new wave of risk aversion through the global markets. Oil prices were on the up once again after the news in Ukraine and after China eased some of its COVID related lockdowns, and OPEC warned it would be impossible for it to replace lost Russian supply. The situation with China's COVID response is being monitored closely, as this could have global repercussions on supply chains, and this could also be a reason for the US dollar's current strength. The French election will remain in focus this week as various unofficial polls give clues on whether Macron or Le Penn will claim victory on the 24th of April. The euro could be the beneficiary of polls claiming a Macron win, whereas a Le Penn win could send shockwaves through the market and cause some euro weakness. Expect some volatility in euro pairs as markets try and digest the changing landscape in the elections.

Expected Ranges

  • GBP/USD: 1.2965 - 1.3045 ▲
  • GBP/EUR: 1.1915 - 1.2005 ▲
  • GBP/AUD: 1.7385 - 1.7565 ▼
  • EUR/USD: 1.0810 - 1.0905 ▼