EUR/GBP pushes above 0.8350 with markets jittery about possible Russian attack on Ukraine

• EUR/GBP pushed back above 0.8350 on Wednesday with risk appetite choppy on fears of a full-scale Russia invasion into Ukraine.
• More dovish-leaning commentary from BoE policymakers on Wednesday before the UK parliament TSC also hindered GBP’s cause.

Though trading conditions are calmer on Wednesday versus Tuesday’s choppiness, EUR/GBP continues to trade with an upside bias and recently pushed above the 0.8350 level, up a further 0.25% on the day following Tuesday’s 0.3% rise. The market’s broader appetite for risk remains choppy and Russia/Ukraine crisis headline-driven, with the latest reports that the US has warned Ukraine of Russian plans to launch an assault within 48 hours denting sentiment. Given GBP’s status as comparatively more risk-sensitive versus the euro, that suggests a continued upside bias to the pair on Wednesday and, perhaps, for the rest of the week, likely makes sense.

In that sense, bulls will likely be targeting weekly highs in the 0.8380s set on Tuesday and last week’s highs at 0.8400 just above it. The dovish leaning tone to BoE commentary, with policymakers, speaking before the UK parliament’s Treasury Select Committee (TSC), on Wednesday has further added support to EUR/GBP. Governor Andrew Bailey said he saw inflation risks as tilted to the upside though as still two-sided and cautioned investors against getting overly aggressive betting on future interest rate hikes.

Meanwhile, one BoE members who voted for a larger 50bps rate hike at this month’s policy meeting said the decision had been finely balanced, while another (who also voted for 50bps) said he now sees “modest” tightening over the coming months. Most recently, BoE’s Silvana Tenreyro was on the wires as well, and she also talked about a further “modest” tightening of policy. This might have supported EUR/GBP more was it not for the fact that traders have begun talking about how Russia/Ukraine uncertainty will likely lead the ECB to be a little more dovish/cautious at the upcoming March meeting.

Looking ahead to the rest of the week, central bank speak and economic data is likely to take a back seat to the theme of geopolitics in Eastern Europe. If US intelligence officials are right and Russia does mount a full-scale invasion within 48 hours, that would likely be the most important market event since the onset of the pandemic. The question for EUR/GBP would be whether it ought to shoot higher to reflect weaker risk appetite or lower to reflect Eurozone economic vulnerability given its reliance on Russian energy imports.