GBP/USD dips back towards 1.3550 area amid choppy trade as markets observe Russia/Ukraine crisis developments

• GBP/USD slipped back to the 1.3550 area in recent choppy trade with FX markets mixed as traders assess Russia/Ukraine developments.
• Russia recognised the independence on rebel-held regions in Eastern Ukraine and moved in troops on Monday, escalating tensions with Ukraine.
• The UK has already announced sanctions and the EU and US are expected to follow suit shortly.

GBP/USD has come under selling pressure on Tuesday, falling back to the 1.3550 area in recent trade from earlier session highs at 1.3600 to now trade with losses of about 40 pips of 0.3% on the day. G10 FX market trade is choppy and mixed as traders/market participants assess the fallout of Russia’s decision on Monday to recognise the independence of rebel-held territories in Eastern Ukraine and to subsequently sign new defense agreements with the regions. Russian troops have since moved in on a “peacekeeping” mission to the rebel-held areas of Donetsk and Luhansk. Investors fear this could be a precursor to a broader Russia/Ukraine conflict as separatist forces continue to accuse Ukraine’s military of aggression.

UK PM Boris Johnson recently became the first major Western nation to formally announce sanctions against Russia for what it says is a breach of international law and this may have something to do with recent GBP underperformance. Indeed, at present, GBP is the worst performing G10 currency on the day and, somewhat oddly, other risk-sensitive G10 currencies such as NZD, NOK and SEK have all been performing very well. Traders will likely continue to face difficulties navigating choppy, unpredictable trading conditions as further sanction announcements from the EU and US beckon and NATO leaders continue to warn of the risk of further Russian aggression against Ukraine.

In terms of domestic UK fundamentals, BoE Deputy Governor Dave Ramsden was on the wires on Tuesday and was cautious about the longer-term outlook for policy amid heightened geopolitical uncertainty. Ramsden said that the BoE would need to continue to raising interest rates a little more over the coming months, but warned that the Russia/Ukraine crisis was making it harder to predict the longer-term policy path.

Ahead, focus will switch to US data with flash February Markit PMI surveys out at 1445GMT ahead of the preliminary reading of February CB Consumer Confidence at 1500GMT. Focus will then remain on various appearances from BoE and Fed policymakers speaking over the course of the rest of the week, as well as on the second estimate of US Q4 GDP numbers on Thursday and US January Core PCE inflation on Friday. But geopolitics will remain in the driving seat as investors observe events unfolding and ponder what might be Russian President Vladimir Putin’s next move.