Strengthening of Pound against Euro is Fueled by Worries Over Intensified Ukraine-Russia War

March 7, 2022
Strengthening of Pound against Euro is Fueled by Worries Over Intensified Ukraine-Russia War March 7, 2022 Lennox Hamilton

While there were concerns that the conflict in Ukraine was about to escalate dramatically, experts cut their projections for the European currency, pushing the pound to euro exchange rate over the 1.21 mark. Following reports that Russia had attacked Europe’s biggest nuclear power plant at Zaporizhzhia, culminating in a fire, the Euro was extensively sold and safe haven currencies like the Dollar and the Franc were purchased.

It was also sold against the dollar, yen, france, and antipodean dollars, although it outperformed the euro and Eastern European currencies.. Nuclear power plant Zaporizzhia, which Ukraine claims Russian soldiers have seized control of, is still being run by its normal employees and there has been no radiation released, according to the International Atomic Energy Agency (IAEA).
Power plant assault is noteworthy because it is a hint to investors that the global financial and economic outlook has deteriorated significantly in the last week.

“Russian-Ukrainian tensions are rising. Safe-haven currencies continue in strong demand in the foreign exchange market, mostly to the expense of high-beta currencies” a currency analyst at UniCredit Bank, Roberto Mialich, says he’s lowered his Euro expectations today. If natural gas is shut off from the European Union, the euro may be more susceptible than other currencies, argues Mialich. A larger confrontation is now quite real, according to US Secretary of State Anthony Blinken, who warned on Friday.

“It is our job to protect each other. We do not want to get into a fight. Nevertheless, in the event of a confrontation, we will defend every inch of NATO territory as prepared” Blinken said this to the media. It’s also possible that Russian President Vladimir Putin used illegal weapons in the strike,” says NATO Secretary Jens Stoltenberg.

“Invading Ukraine in defiance of international law is a clear and present danger to world peace and security. In addition, we’ve seen the deployment of cluster bombs,” Stoltenberg” made the comment. On a day when global markets fell, European stock markets were the worst hit, with the FTSE 100 and CAC 40 leading the declines.

After falling below 1.10, the Euro/Dollar exchange rate fell by 1.4%, while the DAX in Germany lost nearly 3.0%. There has been a two-thirds drop in the Euro-Pound exchange rate since the EU vote of 2016, when it stood at 0.8253. Investment expectations for interest rate increases from the European Central Bank have been pushed back in light of geopolitical developments, which have prompted ECB members to express concern about the Eurozone’s economic outlook this week.

According to Marco Valli, Global Head of Research and European Economist at UniCredit Bank in Milan, the recent developments have made it more difficult for the ECB to speed its withdrawal from stimulus. If the situation in Russia and Ukraine continues to develop, it will have an impact on the Pound-Euro exchange rate.

Currently the stories don’t constitute for pleasant material in this industry, which relies heavily on them. According to Professor, former director of the war research center at King’s College London and currently a deputy vice-chancellor at the University of Wollongong in Australia, “the EU and Nato have to get ready for the (almost) inconceivable,”

At least 40 people were killed when Russia is said to have used chlorine-based chemical weaponry to assault an anti-government rebel stronghold outside the Syrian capital in 2018. The United States has warned that Russia may employ a similar approach in the Ukraine. Russia’s Foreign Minister Sergei Lavrov’s allusion to supposed U.S. biological installations in Ukraine has stoked fears that Russia may deploy chemical weapons in Ukraine.

There is concern that this might be ‘red flag’ sign that chemical weapons are about to be used. As of now, NATO and its allies maintain that they will not send soldiers in support of Ukraine, rejecting Ukraine’s request for no-fly zones. He added: “We have an obligation as Nato members to deter this conflict from spreading beyond Ukraine because that would be much more destructive, more catastrophic and would inflict even more human misery,” As their counterparts have done, the economists at UniCredit Bank have lowered their economic growth projections for the Eurozone from 3.7% to 3.1%, and from 2.8% to 2.5% for 2023 as well.

Between now and then, they’ve lowered their Euro-Dollar exchange rate predictions to 1.07 by the second quarter of 2022. For the second quarter, they expect the Euro-Pound to be at 0.81, which translates to a Pound-Euro objective of 1.2350. Nevertheless, if there are any indications of progress in Ukraine, one possible source of comfort would be the declaration of a ceasefire. The Euro may rise sharply. If this occurs, the market is likely to see a rapid reversal of recent gains. Relief will only last a short time since there is no evidence that Putin will modify his viewpoint.

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