With news filtering through of a full scale invasion by Russia into Ukraine this morning, markets have taken a tumble with both GBP & EUR falling off against The USD. GBP/USD is now below the 1.35 area with EUR/USD currently in the mid 1.12 range with both currency pairs having dropped 1 cent against The USD since markets opened.
The FTSE 100 has also dropped 2.7% this morning as the world economy reacts to the latest developments in The Ukraine. There seems to be room for further losses for the more riskier currencies as safe haven pairs such as JPY, CHF & USD are sought out by investors and traders.
GBP falling below 1.35 is the lowest it’s been since February 15th, and could fall further as this situation develops further. On top of this, The USD has been supported by further expectations for The Fed to start a rate hike campaign from March. It should be noted that with rising risks surrounding Ukraine, a 50 bps hike in March has now been lowered from 25% probability to 16% in the space of a few hours.
The price of Oil has exceeded $100 per barrel for the first time since 2014 due to Russia’s invasion of Ukraine which has now led to deepening concerns that a full scale war in Europe could disrupt global energy supplies. Russia is the world’s second largest Oil producer as well as the largest provider of natural gas to Europe, providing around 35% of The Bloc’s supplies. This growing uncertainty leaves prices vulnerable and more than likely exposed to higher prices, therefore putting inflationary pressure back onto the World’s economy at a time when there was hope that a post-covid recovery was in full flow. UK Natural Gas contracts have already rose 20% this morning, however moving into the warmer months we shouldn’t yet feel the initial impact, although if prices continue to rise then coming out of summer and into the winter is where it could get bad with prices rising uncontrollably.
Economic data releases at this stage won’t have too much impact on the markets, with full focus on the developments within the Ukraine. Either way, the main beneficiaries of this will continue to be the safe haven currencies, such as USD, CHF & JPY.
