It is without question we are in turbulent times- where the majority of investors are unsure of how they are to plan around current events- geopolitical events are non-stop at the moment, and we are seeing markets in a way we have not before.
GBPEUR exchange rates climbed above 1.21 last week due to investor worries that the Russia & Ukraine situation will worsen- due to sanctions made by Europe, and a worsening economic outlook for the EU, this is directly affecting their currency and stock markets, we have now seen EURUSD go as low as 1.0890 last week and Germany’s DAX down just over 3%, and I am not sure we have bottomed yet. GBPEUR rates have still been climbing, and so far the highest we have seen is 1.21- it must be noted this is not due to GBP strength, but mostly uncertainty in the markets. This can be proven by GBP’s underperformance against other currencies like the U.S Dollar where exchange rates are now at 1.32- the lowest we have seen since December 2021.
Right now, investors are looking for safe havens- which is why currencies like the U.S Dollar and Japanese Yen have caught a bid- but with a rapidly changing situation like a war, it is completely impossible to predict what will happen next- so I urge caution if you are making purchases currently when GBPEUR runs higher, it is always easy to think it will somehow go to 1.30 next, but if you do not know why prices are going higher, or can justify them going higher than where they are now, then these are most definitely great levels to be buying (Highest since 2019).
From my perspective, there are now two large risks ahead of us- Russia banning the export of fertilizer and the U.S banning the import of Russian oil- these two moves could move the market sharply in one stroke- with massive economic implications across the board. These are two things to watch out for, of course, alongside the actual war escalating- our best-case scenario is peace talks and de-escalation, but I am unsure how close we are to that point yet.
This month the two main economic events are of course the FOMC (25 bps hike expected) and the BoE (25bps hike expected)- a rate hike from the Fed is now fully priced in and shouldn’t shock the markets, it is now needed to control inflation, but it seems with the issues between Russia & Ukraine, inflation is not going lower any time soon, just look at oil prices!