Ukraine crisis continues to stir volatility in currency markets

Trade in currency markets remained erratic on Friday as the situation in Ukraine continues to stir up geopolitical uncertainty.

This trend has persisted into this week as trade in the pound is mixed this morning, with GBP/EUR surging to €1.1947, while GBP/USD plummets to $1.3370. GBP/CAD and GBP/NZD have appreciated to C$1.7076 and NZ$1.9920, respectively, while GBP/AUD holds steady at AU$1.8558.

Looking ahead, with Ukraine continuing to dominate headlines can we expect more volatility this week?

What’s been happening?

Whilst the movement wasn’t anywhere near as dramatic as on Thursday, the end of last week still prompted some volatile trade in currency markets.

After storming to year-to-date highs after Russia’s invasion of Ukraine first got underway, the US dollar trended broadly lower on Friday, extending its losses in the wake of a market correction overnight.

This came amidst an improvement in risk appetite, as the sanctions imposed on Russia proved less severe than first feared and reports suggested Russia is ready to hold talks with Ukraine in Minsk.

The pullback in the US dollar coupled with even the smallest possibility of a ceasefire being found helped the euro to close last week’s session on a positive note. The single currency was hit particularly hard on Thursday amidst fears over the impact a war in Eastern Europe could have on the Eurozone economy.

Also aiding the euro’s ascent was the publication of Germany’s latest GDP figures as the final estimate for the fourth quarter reported a smaller-than-expected contraction of growth.

Meanwhile the pound struggled to attract support on Friday as GBP investors continued to scale back their expectations for the Bank of England’s (BoE) next interest rate hike.

What’s coming up?

Turning to the start of this week’s session, in the absence of any notable economic data, it’s highly likely we continue to see the situation in Ukraine act as the main catalyst of movement in currency markets.

This could infuse fresh volatility into the pound, euro and US dollar following a weekend which saw Western powers dramatically step up their sanctions against Russia in response to escalating violence in Ukraine.

This has already seen the US dollar rocket higher during today’s Asian trading session and could push the EUR/USD exchange rates to a fresh 20-month low during European trade.