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MONDAY 21/2/2022 – STERLING STILL POSITIVE VERSUS DOLLAR DESPITE FADING RISK APPETITE Sterling gave up some gains but remained in positive territory against a slightly weakening dollar on Monday while optimism about a diplomatic solution to the Russian-Ukraine standoff faded, dampening risk appetite. The Kremlin said there were no concrete plans for a summit over Ukraine between Russian President Vladimir Putin and his U.S. counterpart Joe Biden, after the French president said the two leaders had agreed on a meeting in principle. The pound was up 0.15% against the dollar at $1.3608, not far off its highest level since Jan. 20 at $1.3643. It was up 0.05% against the euro at 83.28 pence. “Because the markets are already very nervous due to high inflation, rising interest rates and upcoming rate hikes, the Ukraine-Russia conflict is temporarily acting as an amplifier of market movements,” Moritz Paysen, a foreign exchange and rates analyst at Berenberg, said in a research note. Activity in Britain’s private sector picked up at the fastest pace since June 2021 this month, after supportive data releases for the pound last week. Data showed that British consumer prices rose at the fastest annual pace in nearly 30 years last month, reinforcing the chances that the BoE will raise interest rates for the third meeting in a row.   TUESDAY 22/2/2022 – DOLLAR DIPS IN CHOPPY TRADE AS INVESTORS WEIGH UKRAINE SCENARIOS The U.S. dollar dipped slightly against a basket of major currencies on Tuesday amid choppy trade spurred by developments in Ukraine after Russian President Vladimir Putin recognized two breakaway regions in the country and ordered troops to the area. The Kremlin said it remained open to diplomacy with the United States and other countries as it faced actions from a slew of countries. Britain published a list of sanctions and Germany froze the Nord Stream 2 Baltic Sea gas pipeline project, which would have significantly increased the flow of Russian gas. The dollar weakened somewhat as U.S. President Joe Biden announced the first wave of sanctions against Russia while saying he hoped diplomacy was still available. The euro rose versus the greenback after earlier touching its lowest level since Feb. 14, buoyed in part by the hope for talks and economic data that showed business morale in Germany improved in February across all sectors to its highest since August. The dollar index =USD fell 0.1%, with the euro EUR= up 0.2% to $1.1333. The greenback swung between gains of as much as 0.1% and a decline of 0.35% on the day. “Putin is running the show here, but the markets are not responding as if they are really fearful that what happened is an irredeemable escalation that is going to end up with the kind of sanctions that wreck economies, or at least will wreck the global recovery,” said Joseph Trevisani, senior analyst at in New York.   WEDNESDAY 23/2/2022 – STERLING FALLS BELOW $1.36 AS BOE TRIES TO COOL RATE-HIKE BETS Sterling edged down versus the dollar and euro on Wednesday after Bank of England Governor Andrew Bailey told parliament there were clear inflation risks but markets should not get carried away over the likely scale of interest rate hikes. Speaking about the BoE’s decision earlier this month to raise interest rates, Bailey said he saw a clear risk of inflation sticking at high levels, adding that second-round effects are a concern, which could require more hikes. But he urged investors not to get carried away with bets on future interest rate hikes. Sterling barely moved after speeches from the BoE governor and three other members of the central bank. But it fell below the $1.36 mark later in the day. Versus the dollar, it edged 0.2% lower to $1.3553 at 1650 GMT, after touching a six-day low the previous day. It fell 0.1% against the euro to 83.47 pence after recording its worst day against the single currency in one week on Tuesday, when it fell at one point to 83.82. “Sterling has traded sideways through today’s BoE testimony to the Treasury Committee,” said Simon Harvey, head of FX analysis at Monex Europe. “BoE communications since February’s meeting have largely taken aim at cooling market-implied policy rates,” he said. The BoE raised interest rates to 0.5% this month from 0.25%, in a split decision with some members voting for a 0.50% increase to 0.75%.   THURSDAY 24/2/2022 – STERLING FALLS TO 2-MONTH LOW VERSUS DOLLAR, BIGGEST DROP SINCE MARCH 2020 Sterling crashed against a surging dollar in its worst day since March 2020 as investors rushed into safe-haven assets after Russian forces invaded Ukraine. Missiles rained down. Ukraine reported columns of troops pouring across its borders from Russia and Belarus and landing on the coast from the Black and Azov seas. Safe-haven currencies such as the yen and U.S. dollar were in demand, while riskier currencies, including sterling, dived. The pound fell 1.8%, its biggest daily decline since March 2020, to $1.3302, its lowest since December 22. “As for sterling, it’s a spectator,” Kit Juckes forex analysts at SocGen said. “The UK is less vulnerable economically than the Euro zone, but not invulnerable. I expect EUR/GBP to continue trading in a relatively narrow range,” he added. Sterling was down 0.1% versus the euro at 83.59 pence in choppy trade. The narrative about future interest rates was also in focus, and investors’ views remained mixed. BoE Chief Economist Huw Pill provided another dovish comment on Thursday by saying the central bank would seek to bring fast-rising inflation down in a “measured way” and one “that doesn’t disturb the rest of the economy”. MUFG analysts said “the (Ukraine) conflict is likely to encourage market participants to scale back expectations for monetary tightening from major central banks in the near term.”   FRIDAY 25/2/2022 – FOREX-EURO STEADIES AFTER TUMBLE POST UKRAINE-INVASION The euro steadied on Friday following Thursday’s sharp declines after Russia’s all-out invasion of Ukraine unleashed the biggest attack on an European state since World War Too. The dollar flattened against most currencies as markets walked back some of the tumultuous moves from the previous day. Russia’s rouble RUB= also recovered some ground, trading at around 82.8 per dollar, having hit a record low of 89.986 per dollar the day before. FX markets are slightly calmer this morning as the world tries to come to terms with war in Europe, said Chris Turner Global Head of Markets at ING. The size and prominence of the sanctions on Russian banks and the size of their FX deposits may take some time to percolate through, he said. The United States, the European Union and some other countries responded to Russia’s invasion of Ukraine with a wave of sanctions impeding Russia’s ability to do business in major currencies along with sanctions against banks and state-owned enterprises.