Pound US Dollar Exchange Rate News: GBP/USD Falls as Ukraine Crisis Drives Risk-Off Sentiment

March 2, 2022 - Written by John Cameron

STORY LINK Pound US Dollar Exchange Rate News: GBP/USD Falls as Ukraine Crisis Drives Risk-Off Sentiment

GBP/USD Slips amid Geopolitical Tension

The Pound US Dollar (GBP/USD) exchange rate is stumbling today as Russian military continues to advance into Ukraine, underpinning risk-off flows.

At the time of writing, the GBP/USD exchange rate is trading at approximately $1.3308, down roughly by 0.2% from today’s opening levels.

US Dollar (USD) Climbs as Ukraine Crisis Weighs on Market Mood

The US Dollar (USD) is gaining ground against the Pound (GBP) today amid heightened geopolitical uncertainty as the Russia-Ukraine war continues.

In last night’s State of the Union address, President Joe Biden told US citizens that his Russian counterpart had ‘badly miscalculated’.

Biden stated that Vladimir Putin must ‘pay a price’ for this ‘premeditated and unprovoked war,’ announcing US airspace would be closed to Russian planes.

Whilst Putin advances his troops further into Ukraine and tensions between Russia and the Western world remains high, many investors are turning to the safe haven currency.

At the same time, easing Federal Reserve rate hike expectations are capping the ‘Greenback’s gains.

The Fed is thought to be adopting a more cautious approach to monetary policy amidst the rise in geopolitical uncertainty and the threat of greater inflationary pressures.

Later this afternoon, Fed Chair, Jerome Powell, is scheduled to testify before US Congress. If he signals the US central bank may need to rethink its upcoming interest rate hikes then the US Dollar may weaken.

Michael Kantrowitz, chief investment strategist at Piper Sandler, commented on the ‘sharp rise in energy spending’ and stated that should the Fed hike rates more aggressively in the future, it may lead to a ‘recession in 2023.’

In a bid to ease the financial burden on US citizens, Biden used last night’s platform to highlight his £1.2 trillion infrastructure bill.

Biden said:

‘We have a choice: one way to fight inflation is to drive down wages and make Americans poorer. I have a better plan to fight inflation - lower your costs, not your wages.’

Pound (GBP) Slipping as Ukraine Crisis Rages On

The Pound (GBP) is dropping against the US Dollar (USD) this morning as the situation in Ukraine dominates headlines.

As the Russia-Ukraine conflict continues, markets are continuing to reprice their expectations for the Bank of England’s (BoE) next interest rate hike.

This is further limiting Sterling’s appeal.

Yesterday evening, BoE Policymaker Michael Saunders, said:

‘I am not in favour of aiming to restore the lost potential output by “running the economy hot.”

‘Rather than lift potential output, I suspect that a policy of “running the economy hot” would simply produce an even more persistent inflation overshoot and further lift long-term inflation expectations.

‘…I want to stress that my vote for a 50bp hike in February does not necessarily imply that I would vote for a 50bp hike in the event that further tightening is required.’

GBP/USD Exchange Rate Forecast: Ukraine Crisis to Remain Key Catalyst

For the foreseeable future, the Russia-Ukraine war is likely to continue to act as a key catalyst for the GBP/USD exchange rate.

Heightened geopolitical uncertainty is likely to underpin the currency risk-off mood, which will in turn bolster the safe haven ‘Greenback’.

Later today, a speech by the BoE’s Jon Cunliffe could exert some pressure on the Pound, if he echoes over BoE policymakers in adopting a more cautious outlook on monetary policy.

On the data front, USD may receive support from ISM non-manufacturing PMI tomorrow which is expected to increase from 59.9 to 61.

In addition, US jobless claims are forecast to decrease, with the number of US citizens filing for benefits expected to slip from 232K to 225K.

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