Market report

Pound to euro rate at the best since 2016

Lawrence Kaplin
Lawrence Kaplin 04 March 2022

GBP: Sterling benefitting from the weakness of the euro

EUR: EZ exposure to conflict causes euro to weaken

USD: Dollar dominates on safe haven flows

Sterling

Whilst the crisis continues, moves on sterling pairs remain dictated by market sentiment.

With the eurozone deemed to be the most exposed to the conflict, yesterday we saw the euro make new lows versus the pound hitting resistance levels last seen in December 2019. News overnight about a fire breaking out at a Ukrainian nuclear complex added to the woes for the euro with the currency now at the weakest level against the pound since the June 2016 referendum.

The other key movement in the markets is this flee to safe havens with the US dollar and Swiss franc gaining causing the GBPUSD and GBPCHF rate to be at the lows that we saw in December 2021.

Commodity based currencies such as the Australian, Canadian and New Zealand dollar are also benefiting in this market with commodity prices continuing to soar. GBPAUD is now near the low that we saw in May 2021, with GBPCAD and GBPNZD back at the December lows.

UK construction PMI’s are due for release this morning but in the midst of the crisis, the figure may well be overlooked with the market likely to take cues with developments in Russia/Ukraine.

Euro

As mentioned above the euro continues to be unfavoured by markets as the conflict continues as well as worries over stagflation in the eurozone all weighing on the euro.

With flows coming out of the euro and buying into the US dollar, the EURUSD now sits at its lowest level since May 2020.

Retail sales are due for release at 10am with sales forecasted to rise to 9.1% year on year.

US dollar

The US dollar index rose to its strongest level since May 2020 as its role as safe haven continues to see heavy demand by the markets and whilst the markets remain risk averse, demand for the US dollar should continue.

On the domestic front, Fed Chair Jerome Powell reaffirmed that the Fed should raise interest rates in the US by 25 basis points in March and said that the Fed should consider the option to hike rates by 50 basis points should the first round of rate rises fail to temper rising inflation.

This afternoon sees the release of the all-important job and wage growth figures. Expectations are for an additional 400,000 jobs to be added in February.

Market rates

Today's Interbank Rates at 08:16am against sterling movement vs yesterday.

Euro €1.209 ↑
US dollar $1.331 ↓
Australian dollar $1.809 ↓
South African rand R20.31 ↓
Japanese yen ¥153.7 ↓