Exchange Rates Forecast: Could Pound Canadian Dollar (GBP CAD) & Pound Norwegian Krone (GBP NOK) Plunge On Russia Sanctions?

March 19, 2014 - Written by David Woodsmith

STORY LINK Exchange Rates Forecast: Could Pound Canadian Dollar (GBP CAD) & Pound Norwegian Krone (GBP NOK) Plunge On Russia Sanctions?

The European Union and the United States reacted to the resounding vote in favour of rejoining Russia by the Crimean people in Sunday’s referendum by imposing travel bans and economic sanctions on leading Russian and Ukrainian politicians who have supported Moscow’s annexation of Crimea. The initial round of targeted action was directed a small number of policymakers, however this could be the start of something bigger and move from the world’s two major trading blocs could potentially have a pronounced effect on the global market.

It appears highly likely that the US / EU policy will draw a retaliatory action from Russia, with Moscow likely to hit the West where it hurts most – in the pocket. Russia provides a large proportion of the oil and gas consumed in mainland Europe, with Germany being particularly exposed to any move from Moscow to limit supplies. If such a move was forthcoming, then expect the price of a barrel of crude oil to spiral and support for the euro to ease as a result. In such a circumstance, the Pound euro exchange rate could climb back up above the 1.2200 threshold where it was trading earlier this month. Meanwhile, the Pound Norwegian Krone and Pound Canadian Dollar exchange rates (GBP/NOK and GBP/CAD) would be likely to track downwards thanks to the positive effect which any attendant increase in oil prices would have on the respective economies of Norway and Canada.

If a new Cold War looked to be developing, then investors would be likely to begin hunting out safe havens for their funds. Expect any escalation of tensions to send the Pound US Dollar exchange rate sharply lower GBP/USD, particularly if tonight’s Federal Reserve FOMC meeting brings the announcement of a hefty cut to the US Quantitative Easing programme. Any attendant gains for the Buck could be tempered by a commitment to keep American interest rates at ultra low levels into the medium term by the Fed.

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