Pound US Dollar Exchange Rate News: GBP/USD Rangebound on Peace Talks Optimism

Modified: Monday, 14 March 2022 10:35 BST - Written by John Cameron

STORY LINK Pound US Dollar Exchange Rate News: GBP/USD Rangebound on Peace Talks Optimism

GBP/USD Mixed in Response to the Next Round of Peace Talks

The Pound US Dollar (GBP/USD) exchange rate is trading in a narrow range today as Russian and Ukrainian officials are reportedly meeting virtually this morning in hopes of finding a solution to the war.

At the time of writing, the GBP/USD exchange rate is trading at approximately $1.3045, with minimal movement from today’s opening levels.

Pound (GBP) Subdued as Russian and Ukrainian Officials Congregate

The Pound (GBP) is muted against the US Dollar (USD) today as virtual peace talks between Russian and Ukrainian negotiators are reportedly taking place this morning.

Although Russian attacks have continued, with shelling already killing several people today, there is fresh optimism surrounding this morning’s talks.

Ukrainian negotiator Mykhailo Podolyak has stated that his Russian counterparts are beginning to talk ‘constructively’ and believes a solution will be found ‘in a matter of days.’

Mohit Kumar of Jefferies said:

‘Over last few days, we have turned more optimistic that both parties could be heading towards a compromise.

‘The invasion has not gone according to Putin’s plans which might make him more amenable to a compromise if he gets a face-saving exit.’

This is improving risk appetite and supporting the risk-sensitive Pound this morning, providing GBP with some traction after a generally downbeat disposition since the war began.

However, Kumar continued with an edge of caution, somewhat capping GBP’s appeal:

‘While we wish for an end to the conflict, we would still advise caution against ramping up risk. There is a material risk that negotiations could fail and things could escalate with attacks too close to the Polish border or further casualties and incursion in Kyiv.’

Furthermore, Sterling is receiving additional support as investors look ahead to the Bank of England’s (BoE) interest rate decision on Thursday. At present, BoE is predicted to raise rates from 0.5% to 0.75% which will likely increase demand for GBP.

Meanwhile, a lack of notable data will leave the Pound susceptible to market sentiment throughout today’s session.

US Dollar (USD) Under Pressure from Risk-On Sentiment

The US Dollar (USD) is flat against the Pound (GBP) today as improved risk appetite, driven by fresh optimism surrounding the Ukraine crisis, is steering investors away from the safe haven currency.

However the ‘Greenback’s losses are limited ahead of the Federal Reserve’s interest rate decision scheduled for Wednesday.

The Fed is forecast to increase interest rates from 0.25% to 0.5%, but with the move largely priced in by USD investors, movement in the US Dollar is likely to be dictated by the bank’s forward guidance.

Roberto Perli and other analysts at Piper Sandler wrote in a note:

‘There is no doubt that the FOMC will start raising rates ... What everyone wants to know is what the Fed will do next?’

At present, the Ukraine crisis remains a ‘game changer’ for the Fed, according to Chair, Jerome Powell, and although ‘there are events yet to come […] we don’t know what the real effect on the US economy will be.’

GBP/USD Exchange Rate Forecast: Will Peace Talks Maintain Risk Appetite?

The outcome of today’s peace talks will be the key driving force regarding the Pound US Dollar exchange rate as the Ukraine crisis develops.

Should a diplomatic solution be found, the Pound may be supported by further risk-on sentiment, which in turn will leave the US Dollar struggling against some of its peers.

Looking ahead, the interest rate decisions of both BoE and the Fed will propel GBP/USD throughout this week’s session.

On the data front, the Pound may buoyed by some employment figures on Tuesday.

Meanwhile, the US Dollar may be dented by February’s PPI data, with the figures predicted to slip marginally from 1% to 0.9%.

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TAGS: Pound Dollar Forecasts