Pound sterling and US dollar exchange rate levels
The exchange rate between the pound and the US dollar (GBP/USD) is trading in a narrow range today, with the pound (GBP) supported by improving risk sentiment, while the US dollar (USD) benefits from the rise in Treasury bond yields.
At the time of writing, GBP/USD is trading at $1.3128, slightly higher than today’s opening levels.
Pound (GBP) exchange rate supported by risk tailwinds
The Pound managed to find support against several peers today as positive news emerged amid reports of conflict in Ukraine.
The establishment of humanitarian corridors for Ukrainians fleeing targeted towns has allowed more civilians to escape safely, which has a potential benefit; elsewhere, the European Union (EU) should outline a plan that will fund energy and defense spending.
According to the Nasdaq, the EU will unveil its plan as early as this week to jointly issue bonds on a potentially massive scale. This will help meet significant expenses as the bloc deals with the fallout from Russia’s invasion of Ukraine.
Sterling gains are somewhat capped by domestic problems: the Resolution Foundation warns that UK households are facing the biggest drop in income since the mid-1970s as energy prices soar.
The dramatic rise in oil and gas prices is expected to push UK inflation above 8% this spring, causing average incomes in Britain to fall by 4% in the coming financial year – a success, according to the Foundation, worth £1,000 per household.
Representatives have warned Chancellor Rishi Sunak that high inflation is expected to push more children into poverty.
Tom Keatinge, director of the Center for Financial Crime and Security Studies at the Royal United Services Institute, told Treasury Committee MPs that Sunak needed to provide an urgent update:
“I would like to hear from the Chancellor how he thinks about the impact of the sanctions on the UK economy. This is clearly a huge problem for the UK. It would therefore be good to hear how the thoughts are on managing the cost of living crisis.
The cost of living crisis is also expected to affect businesses, with retail sales likely to come under pressure as people have less to spend.
Helen Dickinson, chief executive of the British Retail Consortium, notes:
“The future looks increasingly uncertain, with current demand unlikely to be sustained… With households facing lower disposable income, discretionary spending will be one of the first things to feel the pressure.”
US dollar (USD) exchange rates remain supported by geopolitical tensions
The US Dollar (USD) remains resilient against its peers despite a slight improvement in risk sentiment as US Treasury yields rise.
Ongoing geopolitical tensions have also prevented a meaningful waiver from risky trade: Russian planes continued to drop bombs overnight near the Ukrainian capital of Kyiv and the third round of Russia-Ukraine peace talks s ended without much progress.
Addressing additional support for safe-haven currencies, Russian Deputy Prime Minister Alexander Novak warned that the country could cut its main gas pipeline to Germany, in a statement responding to reports that Western countries may ban imports of Russian oil.
The United States had explored the idea of a possible ban with allies, as a way to punish Russia for its invasion of Ukraine – but Germany and the Netherlands rejected the plan on Monday, because the EU gets 30-40% of its gas and oil from Russia and has no easy substitutes available if supplies are interrupted.
In an address on state television yesterday, Nokak said: “It is absolutely clear that a rejection of Russian oil would lead to catastrophic consequences for the world market. The price spike would be unpredictable. It would be $300 a barrel if not more.
So far, we do not make such a decision. But European politicians with their statements and accusations against Russia are pushing us towards this.
If you want to reject energy supplies from Russia, go for it. We are ready for it. We know where we could redirect the volumes.
GBP/USD Exchange Rate Forecast: US Employment Data Will Influence Trading?
Going forward, the most likely driver of currency movements will be the situation in Ukraine. Any sign of progress in negotiations between Russian and Ukrainian delegates could boost risk appetite, boosting GBP/USD – increasingly aggressive missile strikes, however, would likely reduce support for risky currencies.
On tomorrow’s agenda, US jobs numbers may have some effect on tomorrow’s business momentum: JOLT job openings are likely to have remained the same in January as in December 2021, inspiring potentially the USD higher on indications of a strong labor market.