The heightened risk of conflict between Ukraine and Russia has triggered a reversal of the euro’s gains from earlier this month. Economists at MUFG Bank expect the EUR/GBP pair to test the key support level at 0.83.

Pressure on the BoE to keep tightening policy going forward

“Recent price action highlights that market participants are initially treating the potential conflict as a negative shock for Europe’s economy that is already weighing on euro performance.” 

“The higher price of oil resulting from the tensions between Russia and Ukraine provides a further complication for the ECB, and will keep pressure building on the ECB to tighten policy unless evidence of a sharper slowdown in growth emerges.”

“Market participants will be listening closely comments from a large number of BoE officials in the week ahead to assess the likelihood of a larger 0.50-point hike on 17th March. If there is any indication from MPC members that they are erring toward a larger hike and/or tensions between Russia and Ukraine continue to escalate further then EUR/GBP appears set to break below support at the 0.8300-level.”

See: EUR/GBP set to challenge the critical 0.83 support – ING