Euro to Dollar (EUR/USD) and Pound (EUR/GBP) Exchange Rates Fall; Russia Invasion Shakes Market

August 29, 2014 - Written by James Fuller

STORY LINK Euro to Dollar (EUR/USD) and Pound (EUR/GBP) Exchange Rates Fall; Russia Invasion Shakes Market

The Euro (EUR) fell against the Pound Sterling (GBP) and saw a sharp decline against the US Dollar (USD) on Thursday, as investors seek the American currency as a safe-haven currency amid an escalating situation of prospective conflict in Ukraine.

Over 1,000 Russian troops have crossed the border into Ukraine, which has caused a shake in the currency market as investors place their money into safer assets. Ukraine’s foreign ministry has stated: ‘Recent Russian actions clearly demonstrate that Moscow is bluntly drawing Ukraine and the entire world into a full-sale war.’

Russia’s Effect on Currency Pairings and Exchange Rates

With Thursday seeing geopolitical tensions escalate to an alarming level, investors are likely to move trust from currencies such as the Euro (EUR) and other commodity based currencies in an attempt to protect the value of their assets. The effect on the market is likely to be continuous as the situation develops until some stability is gained and the risk sentiment is lessened. Expert in the field Eimear Daly stated: ‘Markets have finally been shaken from their slumber and moved into risk-off mode.’

The Eurozone who has presently placed sanctions on Russia have made attempts to clarify with Russia their ongoing actions. In an attempt to understand Russia’s conduct German Chancellor Angela Merkel has called President Vladimir Putin in Russia and requested that he explain himself as he’s sent troops over the border into Ukraine. Furthermore the President of France – Francois Hollande, has stated: ‘Europe will maintain (sanctions), even increase them if the escalation increases. I don’t want it because it is neither in Russia’s nor our interest.’

The Federal Reserve and US Dollar Strength

The ‘Greenback’ is likely to continue its strengthening in light of the Ukraine risk, following its recent rally against other major peers after the Federal Reserve appeared slightly less dovish in their statements and the US economy has produced a string of good data which has brought around the prospect of rate hikes.

The Federal Reserve has stated in recent months the importance of positive unemployment figures. Thursday has seen the US Initial Jobless Claims fall lower than expected at only 298K, in comparison to the 300K forecast. However, despite this, Continuing Claims statistics jumped higher than expected at 2527K, more than the 2510K prediction. The US economy has seen Gross Domestic Product figures grow to 4.2% in the second quarter, showing that the economy is improving, and lending weight to the prospect of rate hikes.

Meanwhile The Euro seems likely to suffer long-term as the geopolitical risk heightens, Russian import bans remain in place, and the Eurozone recovery performs badly as reflected in Eurozone data. One London trader commented: ‘The Ukraine headlines dragged the Euro lower. There have been expectations of routine month-end demand for the Euro, but in any case, a bounce in the Euro is being used as an opportunity to build fresh short positions.’

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