Euro Pound Exchange Rate Muted in Response to Russia’s Invasion of Ukraine
The Euro Pound (EUR/GBP) exchange rate is trading in a narrow range today as geopolitical tensions mount following Russia’s decision to invade Ukraine.
At the time of writing, the EUR/GBP exchange rate is trading at around £0.8333, with minimal market movement from today’s opening levels.
Euro (EUR) Rangebound as Geopolitical Concern Weighs on ECB
The Euro (EUR) is directionless against the Pound (GBP) this morning following Vladimir Putin’s decision to invade Ukraine.
In the early hours of this morning, Putin ordered a ‘special military action’, with Ukraine reporting explosions in the capital, Kyiv.
The outbreak of war on the EU’s doorstep is weighing on the Euro amidst fears over the impact the conflict could have on the Eurozone economy.
EUR investors are also cautious amidst the European Central Bank (ECB) ‘informal get-together’ today.
Today’s meeting was originally expected to discuss the ending of ECB’s bond-buying stimulus programme, and to how to tackle record high inflation in the Eurozone.
ECB policymaker Yannis Stournaras said:
‘In my view it is going to have a short-term inflationary effect – that is prices will increase due to higher energy costs.
‘But in the medium to long term I think that the consequences will be deflationary through adverse trade effects and of course through the rise in energy prices.’
However, since the developments regarding the Russia-Ukraine situation, many experts believe ECB may ‘slow the pace of (ECB policy) normalisation’.
This is causing EUR investors to be wary of the single currency today.
Pound (GBP) Mixed In Response to BoE Comments
The Pound (GBP) is trading flat against the Euro (EUR) following Bank of England’s (BoE) presentation in front of a parliamentary committee yesterday.
On Wednesday, BoE Governor, Andrew Bailey, asked businesses to show restraint when rising prices and stated that employees should not be requesting a pay rise at present. Both statements were made in wake of high inflation.
High energy prices, likely to be further boosted by geopolitical developments, is one area of concern, with Bailey warning that raising incomes may cause ‘second-round effects’.
Bailey also warned markets should not be too aggressive in pricing in future BoE rate hike bets.
Moreover, the crisis in Ukraine is also raising doubts as whether the BoE will continue to tighten its monetary policy, further limiting the Pound’s potential against the Euro.
Euro Pound Forecast: Geopolitical Tensions to Remain at Forefront of Market Movement
Looking ahead, the Pound Euro exchange rate is likely to remain sensitive to geopolitical developments.
Due to the Eurozone’s proximity to the conflict, as well as the dependence on Russian energy supplies, the single currency is likely to come under additional pressure.
With a variety of BoE and ECB speeches scheduled throughout today, EUR and GBP investors are likely to look for any additional hints at how today’s events could influence future monetary policy.
