During the period of geopolitical tension, the pound, along with other key currencies, is experiencing enormous overloads. Experts do not rule out an increase in the crisis, against which the pound will have to make a lot of efforts not to lie low.
On the first day of March, British Prime Minister Boris Johnson announced the possibility of economic pressure on Russian banks in connection with the Ukrainian conflict. The UK is determined to exclude financial organizations of the Russian Federation from the SWIFT international system and freeze bank assets. "Europe should abandon Russian oil and gas. At the same time, a protracted crisis is not excluded, but the UK is ready for this," Johnson stressed.
The British currency reacted to this with shaky positions. On Tuesday, March 1, the pound stabilized against the euro and the dollar, as investors waited for the Bank of England representatives to speak and followed the dynamics of the Russian-Ukrainian crisis. However, the efforts of GBP were not enough for a long time. At the same time, market participants are closely monitoring the central bank's reaction to the Ukrainian conflict and its correlation with plans to increase interest rates.
The British currency failed to attract bulls, and the GBP/USD pair struggled to stay near the 1.3400 level. Some rise in the pound was facilitated by good indicators of the activity of the UK manufacturing sector. According to IHS Markit reports, in February this indicator showed a significant increase (up to 58 points from the previous 57.3 points), exceeding analysts' expectations.
However, the military conflict related to Ukraine has crossed out a number of economic achievements of Great Britain. Against this background, the pound sharply dropped. On Wednesday, March 2, the GBP/USD pair left the cozy range near 1.3400 and traded at 1.3300, unsuccessfully trying to rise. Experts fear an increase in this negative trend. At some point, the pound sank by an impressive 0.36% to 1.3273.
An unreliable geopolitical background increases short-term risks for the pound. The downward momentum has intensified in the GBP/USD pair, which threatens further subsidence of the pound, sensitive to any negative news. A potential decline in the pound is possible due to the high probability of limiting gas flows from Russia and further spikes in LNG prices. An additional pressure factor is a possible increase in the interest rate by the Bank of England by 25 basis points (bp).
Experts expect the strengthening of the British currency against the European one. In this issue, the Ukrainian crisis will play into the hands of the GBP, since Germany's dependence on Russian energy sources increases the risk of a fall for the eurozone. At the same time, experts find it difficult to predict the dynamics of the pound against the greenback, since much depends on the risk appetite and investor interest in the US safe haven currency.
