Dollar Flat as Biden Travels to Europe to Impose Sanctions

The dollar remained steady versus key rivals on Wednesday. The early-week lift from the U.S. Federal Reserve’s strong attitude faded as investors awaited President Joe Biden’s travel to Europe to announce further sanctions against Russia. Biden, who will go to Brussels on Wednesday for discussions with NATO and European leaders, will advocate reducing Europe’s reliance on Russian oil and gas. He might impose further penalties on Russian parliament members for Moscow’s invasion of Ukraine. On Tuesday, oil prices fell as the European Union appeared unlikely to agree to an embargo on Russian oil; this would put pressure on the euro.

“An oil embargo would enhance the probability of Russia shutting off the gas faucet to Europe in response,” Commerzbank’s (DE: CBKG) director of F.X. research Ulrich Leuchtmann said, adding that such a scenario might send Europe into recession. The European Central Bank lags behind peers in the global monetary cycle; hence, Leuchtmann predicted that the euro would suffer. According to him, “the Fed is likely to be significantly more forceful in tackling the inflationary effects than the ECB.”

Fed Changes the Rates

In European morning trade, the yield on U.S. benchmark 10-year Treasuries fell to 2.37 percent; after it rose on Monday after U.S. Federal Reserve Chair Jerome Powell hinted at hiking interest rates by more than 25 basis points at forthcoming policy meetings to battle inflation. After reaching its best level versus the dollar in over three weeks, the euro fell 0.09 percent to $1.1022, while sterling fell 0.25 percent to $1.3230.

As global commodity and energy prices increase, worsened by Russia’s invasion of Ukraine, Britain has the second-highest annual inflation rate among Group of Seven nations, after only the United States. Because Japan imports most of its energy, high commodity prices have been an obvious negative for the yen; this worsened its trade imbalance. The yen fell to a fresh six-year low of 121.415 per dollar; however, subsequently recovered to 120.985 per dollar, down 0.14 percent. The Australian dollar has risen to its highest level against the Japanese yen since December 2015.