News that Russian troops had shelled Europe’s largest nuclear plant in the Ukraine overnight created a fresh wave of risk aversion and as a result, put sterling under pressure against the safe haven dollar. Even though risk sentiment stabilised after the international Atomic Energy reported that there had been no change in radiation levels and Ukraine’s emergency services said that a fire at the plant had been extinguished, the pound failed to capitalise against the greenback. As the euro suffered more on the news, sterling made moderate gains against the single currency. The pound is likely to show little reaction to the Purchasing Managers index for the construction sector due for release this morning and will take its lead from Russia-Ukraine headlines.


The euro fell to its lowest level since May 2020 against the dollar on the news of the nuclear plant attack and in early trading is showing no signs of a recovery. Overall, the single currency is set for its worst week against the greenback in nearly two years, as the war in Ukraine and the prospect of sustained high commodity prices continue to hurt expectations of European economic growth. Against Sterling, the euro is trading at its lowest level since 2016 and against the commodity driven Australian dollar, nearly a four-year low. European Central Bank policymakers met last month and agreed that the first interest rate hike in more than a decade was drawing closer as inflation showed signs of taking hold, the accounts of their February 3 meeting showed on Thursday. However, while such a move is still possible, Russia’s invasion of Ukraine has thrown the central bank’s plans into doubt as comments by several policymakers this week has shown. Retail sales data for the bloc is due later today.


Safe haven flows once again dominated the markets overnight, after reports surfaced of a fire breaking out in a building at a Ukraine nuclear complex after a Russian military attack. Even though it appears there were no elevated radiation levels, and the fire was extinguished, risk averse sentiment remains, and the dollar index is trading at its highest level since May 2020. Federal Reserve Bank Chairman Jerome Powell, while testifying before the House for the second day said the central bank were watching the Ukraine situation carefully and had begun running simulations on what effect a continued conflict could have on growth. As an example, on what persistent increases in oil prices might have on the economy. However, Powell said that so far, the war has not changed the Bank’s plans to raise interest rates at its March meeting. Later today, the February Non-farm payroll report will be released.

Economic Calendar
10.00 EUR Retail Sales
13.30 USD Non-Farm Payroll Report