In last week’s article I mentioned that the focus for exchange rates would be the ongoing tensions between Russia & Ukraine- over the last few days we saw these tensions escalate after Russia began an invasion of Ukraine on February 24th- this kicked off a knee jerk reaction which saw many assets sell-off and investors flee to the Dollar (As you would expect). Over Friday, we saw the markets begin to regain some stability with GBPUSD rising around 2%- however, GBPEUR managed to dip below the 1.19 area showing some demand for the Euro from investors.
After a weekend of sanctions being placed- including a few Russian banks being taken off the SWIFT payment system- this will almost certainly cause major weakness in the Russian Ruble on Monday and I expect the Russian stock markets to fall further on Monday morning.
Some analysts believe that markets have now fully priced in what is happening with Russia & Ukraine, my personal belief is that it is still too early to say, and situations like this are way too unpredictable to even attempt. Until we have seen a real resolution I think there is still plenty of uncertainty and risk to be priced into the markets.
As we enter March- this will be another volatile month for markets- with rising inflation still being a big factor alongside geopolitical risks- it seems the BoE is still set on a rate hike for March, but the bigger story will be the Fed- the current expectation is for QE to stop, and interest rates to go up by 50bps- with all that is going on- I am unsure whether we still get such a large hike from the Fed, but a hike is priced in none the less.