Euro plunges as Russian ‘peacekeeping’ troops enter Ukraine

Philip McHugh February 22nd 2022 - 2 minute read

The euro traded in a wide range on Monday in response to uncertainty over the situation between Russia and Ukraine and whether or not tensions could be defused diplomatically.

Sterling is trading in a wide range so far this morning, with GBP/EUR subdued at €1.1993 and GBP/USD muted at $1.3575. GBP/CAD is on the defensive at around C$1.7296 are holding steady, while GBP/AUD and GBP/NZD retreat to AU$1.8833 and NZ$2.0206, respectively.

Will we see developments in Ukraine infuse fresh volatility into currency markets today?

What’s been happening?

The euro initially opened this week on the front foot, with markets hopeful a diplomatic solution to the Ukraine crisis could be found following reports of a potential summit between US President Joe Biden and Russian President Vladimir Putin.

However this optimism and support for the euro quickly faded after Putin recognised parts of Eastern Ukraine as independent states and ordered troops to move into the area for ‘peacekeeping duties’.

The US dollar, meanwhile, clawed back it early losses after market sentiment began to sour, with risk-off flows propping up the ‘greenback’ in the second half of the session.

At the same time, the pound held its ground on Monday after the UK’s latest services PMI printed well above expectations, bolstering expectations the Bank of England (BoE) will hike interest rates again in March.

What’s coming up?

Looking ahead, the euro could face an uphill battle today, as the Ukraine crisis dominates headlines.

This is likely to offset the release of Germany’s IFO business climate index, which may have otherwise bolstered EUR exchange rates as analysts forecast business morale will have continued to improve this month.

GBP investors will look to a speech by BoE policymaker Dave Ramsden for fresh impetus for movement this morning.

Ramsden was one of the four policymakers who voted for a half-percentage increase to interest rates at the BoE’s February policy meeting, so we can likely expect him to strike a hawkish tone and potentially propel GBP exchange rates higher.

Closing out today’s session will be the publication of the latest US Markit PMIs. While not as influential as the ISM releases, today’s figures could buoy the US dollar if they report a pick-up in US private sector activity this month.

Written by
Philip McHugh

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