GBP/USD retreats from daily highs to 1.3520s amid a risk-off market mood

• The British pound begins the week on the wrong foot, spurred by geopolitical jitters and Brexit.
• The market mood is downbeat as Ukraine-Russian tensions keep arising.
• Odds of the BoE’s hiking 50 bps are at 50%, per money market futures.
• Money market futures have priced in 100 bps of rate hikes of the Federal Reserve.

The GBP/USD snaps two days of gains and begins the week on the wrong foot amid increasing geopolitical tensions in eastern Europe. At the time of writing, the GBP/USD is trading at 1.3528.

The market sentiment is downbeat, depicted by European bourses falling, while US futures point to a lower open. The Ukraine – Russia tensions still weigh on market players’ risk appetite, as uncertainty in talks, and mixed messages crossing the wires, keeps some investors at bay, while others have turned to safe-haven assets. In the FX market, the gainers are the USD, JPY, and CHF.

An absent UK economic docket left GBP/USD traders adrift to geopolitical events and Fed speakers on Monday.

Ukraine / Russia conflict eases, but uncertainty looms

In the meantime, around 12:37, GMT crossed the wires that Russian Foreign Minister Lavrov told Russian President Vladimir Putin that responses from the EU and NATO have not been satisfactory. Furthermore, he added that the US had put forward concrete proposals on reducing military risks. Nonetheless, Lavrov said he could see a way to move forward talks. That said, the GBP/USD bounced from 1.3500 to 1.3546.

At press time crossed the wires, that UK Foreign Minister said that Russia could invade at any moment. Also, according to CNN, US Intelligence assesses that Russia continues to build up forces surrounding Ukraine in preparation for possible military action this week.

Back to the GBP/USD, Friday’s UK’s GDP figures alongside Brexit jitters seem to weigh on the British pound. Those factors, alongside the risk-off market sentiment in the financial markets, portrayed by global equities falling, spurred demand for the greenback and safe-haven peers.

Bank of England’s and Fed odds of increasing 50 bps at 50%

Concerning monetary policy, the Bank of England’s tightening expectations remains high. Money market futures suggest an increase of 25 bps in the March meeting is fully priced in, with over 50% odds of a 50 bps move. 

On the US front, Federal Reserve money market futures odds from a 50 bps increase remain at 50% in March, down from 80% on Friday, on Bullard’s remarks, followed by two 25 bps hikes in May and June, leaving the Federal Funds Rate (FFR) at 1%, as St. Louis President Bullard’s expected.

The UK economic docket for Tuesday would reveal employment data, followed on Wednesday by January Consumer Price Index (CPI). Across the pond, on Tuesday, the Producer Price Index  (PPI) for January is expected, followed by Retail Sales on Wednesday.