GBP/USD stalls in the risk-on rally near 1.3180

• GBP/USD is higher in anticipation of a Ukraine crisis solution after Zelensky again called on Russian PresidentPutin for dialogue.
• Markets ate pricing a total of 157 basis points of interest rate hikes from the BoE before the end of the year.

GBP/USD is trading near the highs of the day at the time of writing as the price penetrates the 1.3180s. Cable has rallied between a low of 1.3088 and 1.3186 so far and is up some 0.63% so far. There are hints that Russian President Vladimir Putin and Ukrainian President Volodymyr Zelensky may be tentatively opening themselves to a compromise.

In an ABC TV interview released Tuesday, Ukrainian President Volodymyr Zelensky again called on Russian President Vladimir Putin for dialogue, stressing that Ukraine is ready to talk and seek compromises, but is not ready to capitulate.

"First of all, I'm ready for a dialogue, but we're not ready for surrender," Zelensky said when asked whether Ukraine is ready to comply with the demands of the Russian Federation for a ceasefire: to change the Constitution and refuse to join NATO, recognize Crimea as Russian, recognize the independence of the so-called LPR/DPR.

"Because it's not about me, it's about the people who elected me. Regarding NATO, I lost interest in this issue after we realized that NATO is not ready to accept Ukraine. The alliance is afraid of contradictory things and confrontation with the Russian Federation," he added. A meeting between the two countries will, reportedly, be on Thursday in Turkey.

Risk appetite has returned to forex and markets in general while commodity prices eased. Additionally, against a basket of currencies including the pound, the US dollar (DXY) is down 1.13% to 97.955, after hitting a 22-month peak on Monday.  The low on the day is at 97.853 so far. The pull-back in commodity prices that have contributed to surging inflation and added to uncertainty around economic growth expectations is helping risk to recover as well. 

Brent crude was down 12.8%, at $112.97 a barrel, after earlier falling to as low as $105.91, while US West Texas Intermediate fell 18%, to $103.98, both dropping from their highest since 2008. Investors have taken the view that the US ban on Russian oil will not worsen a supply shock.

Additionally, European and US stock markets were staging a solid rebound after four straight sessions of heavy losses. Investors are moving in at a discount amid fresh yet shaky optimism about a diplomatic solution to the conflict. The Dow Jones Industrial Average jumped 2.4% to 33,413.09, with the S&P 500 higher by 2.8% to 4,286.14, and the Nasdaq Composite almost 3.5% up at 13,242.56.

Meanwhile, EUR/GBP is also higher, rallying to 0.8417 from a low of 0.8314 in the diverging policy expectations from the Bank of England and the European Central Bank that meets on Thursday. The money markets are currently pricing a total of 157 basis points of interest rate hikes from the BoE before the end of the year. The BoE will meet next week.