GBP/USD fails to break above February range, back under 1.3600 as geopolitical angst remains high

• GBP/USD tried but failed to break above its 1.3500-1.3650ish range that has prevailed for most of February.
• The pair fell back under 1.3600 in the US session as geopolitical angst remains elevated.
• That kept USD in demand and negated pushback against a 50bps March rate hike from Fed’s Williams.

GBP/USD tried but eventually failed to break out of the top of its 1.3500-1.3650ish range that has prevailed for most of February so far, with the pair eventually falling back below the 1.3600 level during US trade. Violence in Eastern Ukraine escalated further on Thursday, weighing on macro sentiment as Russia continues to mass troops close to Ukraine’s border despite pledges earlier in the week to partially withdraw. That means that the safe-haven US dollar gained against most of its G10 counterparts, including sterling.

As traders continue to assess the fast-moving Ukraine situation and the prospect that it triggers a further downturn in risk appetite next week, the range play for GBP/USD likely makes sense for now. Strong January UK Retail Sales data released early in Friday’s European session, though a sign that the UK consumer started 2022 with good momentum, was not able to spur lasting upside in sterling. That’s because economists continue to fret about an upcoming rise in tax and energy costs in April that will eat into consumer budgets and likely act as a break on growth.

Various Fed members hit the wires on Friday and the most notable moment was NY Fed President John Williams’ remark that there isn’t a compelling reason for taking a “big step” (read: 50bps rate hike) at the start of lift-off. As a result, the money market-implied probability that the Fed hikes rates by 50bps at the coming March meeting fell sharply to just 21%, down from around 50% just one week ago. That “should” have weighed on the dollar, but Fed speak and US data this week has had less influence on markets than usual with so much focus on geopolitics.

That’s likely to remain the case next week, with a key face-to-face meeting between US Secretary of State Anthony Blinken and Russian Foreign Minister Sergey Lavrov meeting at some point in the hope of de-escalating tensions. Otherwise, flash UK and US February PMI surveys, more central bank speak and US Core PCE inflation data for January make up the highlights on the data calendar.