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Euro Pound Exchange Rate Faces Headwinds as Ukraine Crisis Remains Front and Centre


Euro Pound Exchange Rate Falls as Russia-Ukraine War Rages On

The Euro Pound (EUR/GBP) exchange rate is dropping today as EUR investors remain unsettled by the situation in Ukraine

At the time of writing, the EUR/GBP exchange rate is trading at around £0.8231, roughly down by 0.5% from today’s opening levels.

Euro (EUR) Loses Ground as Russia-Ukraine War Spurs On Energy Prices

The Euro (EUR) is tumbling against the Pound (GBP) this morning amidst ongoing concern over the crisis in Ukraine and its knock on effects on the Eurozone economy.

The US and EU are reportedly discussing a potential ban on Russian oil imports, in a move which could dramatically increase energy prices in Europe. In turn, this may exacerbate the cost-of-living situation and cause the European Central Bank (ECB) to rethink its current rate hike trajectory.

Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said:

‘Russia looks increasingly embedded in the conflict, and with relentless bombardments of Ukrainian cities and human tragedy continuing, speculation is that the US and Europe will retaliate by banning Russian energy exports.

‘That would have a ricochet effect on their economies, with a supply squeeze on global markets, pushing up prices for industries across the board and making the cost of living crisis even more painful.

‘This piles pressure on central bank policymakers, who are faced with the increasingly difficult tightrope to tread of trying to bring down inflation by raising rates, which will make overall costs more unbearable, potentially tipping economies back into a downturn.’

On the other hand, German retail sales for January may be limiting EUR’s losses today.

The figures printed at 2%, slightly above the market forecast 1.8% and significantly higher than December’s 4.6% contraction.

Moreover, Germany reported1.8% expansion in factory orders in January.

Although lower than December’s 3% increase, the order growth is still stronger than forecast and may be helping to cap the single currency’s losses.

Pound (GBP) Rises Against a Weakened Euro

The Pound (GBP) is trading higher against a weakened Euro today, though on the back foot against the majority of its other peers.

The Ukraine crisis continues to suppress GBP sentiment this morning, albeit not to the same extend as the Euro.

Although Boris Johnson has stated that Vladimir Putin ‘must fail’, the current and possible sanctions imposed upon Russia have the potential to damage the UK economy.

This is steering investors towards safe haven currencies, leaving Sterling exposed as the cost-of-living crisis intensifies.

Euro Pound Forecast: Ukraine Crisis in Spotlight

Looking ahead, Vladimir Putin’s actions are likely to continue governing the economic and political environment of both the Eurozone and the UK. This will likely infuse fresh volatility into the Euro Pound exchange rate.

From a data perspective, the Euro may receive additional pressure tomorrow from the Eurozone’s latest GDP release. The third estimate of growth in the fourth quarter is expected to confirm GDP retreated from 2.2% to 0.3%.

EUR exchange rates may also remain suppressed ahead of the ECB is interest rate decision on Thursday. While the ECB is expected to leave rates on hold again this month, there is a high degree of uncertainty over the bank’s forward guidance as while inflation continues to build, the uncertainty of the war in Ukraine looks to stymie any chance of the bank raising interest rates in the near future

On the other hand, the Pound may continue to be directed by geopolitical developments amid an absence of notable data throughout the first half of the week.