Flaring Russia-Ukraine Tensions Spark Pound US Dollar Exchange Rate Losses

November 20, 2024 - Written by John Cameron

STORY LINK Flaring Russia-Ukraine Tensions Spark Pound US Dollar Exchange Rate Losses

The Pound US Dollar (GBP/USD) exchange rate weakened on Tuesday as worries about the Russia-Ukraine war sparked widespread risk aversion.

The Pound (GBP) dropped on Tuesday as mounting tensions in the Russia-Ukraine conflict weighed heavily on the UK currency.

Over the weekend, outgoing US President Joe Biden approved the use of US weapons for Ukrainian strikes on Russian territory. The UK is poised to follow suit, permitting Ukraine to deploy Storm Shadow missiles on targets within Russia.

On Tuesday, Russian President Vladimir Putin endorsed an update to Russia's nuclear doctrine, allowing for the use of nuclear weapons and interpreting any strikes on Russia using US or UK weapons as a joint attack.

Later, Kremlin spokesperson Dmitry Peskov clarified that Russia might consider a nuclear response to a non-nuclear attack.

These developments soured market sentiment on Tuesday, with the potential escalation of the conflict significantly impacting European currencies, including the Pound and the Euro (EUR).

In the midst of the cautious market atmosphere, the safe-haven US Dollar (USD) found its footing and began to climb.

The mere utterance of a 'nuclear response' sparked a wave of panic across global markets, sending investors rushing towards safer assets. This surge in risk aversion drove a significant inflow of capital into the 'Greenback', as investors sought the shelter of the safe-haven US Dollar.

GBP/USD Exchange Rate Forecast: UK CPI to Boost Sterling?

Looking forward, the upcoming UK consumer price index release is a key focus for GBP investors, with the potential to propel the Pound higher.

Economists predict that the figures will reveal a sharp acceleration in UK headline inflation in October, jumping from 1.7% to 2.2%, largely driven by the recent rise in the energy price cap. With inflation poised to overshoot the Bank of England's (BoE) 2% target, a robust CPI reading could quash any remaining expectations of a December rate cut by the bank, thereby lending support to the Pound.

Concurrently, market risk sentiment could continue to dictate the GBP/USD pair's trajectory. Should geopolitical tensions surrounding the Russia-Ukraine conflict persist and keep markets on edge, the safe-haven US Dollar may strengthen against the Pound.

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