Euro Falls As Ukraine War Causes Inflationary Pressures

As the crisis in Ukraine drove oil prices soaring and fuelled worries of a stagflationary shock that may smash Europe, the euro fell to a new 22-month low against the dollar. At the same time, commodity currencies surged to multi-month highs. In Asian trade, the euro plummeted by 1% to $1.0822, its lowest level since May 2020. It’s dropped more than 4% since Russia launched a “special military operation” in Ukraine, and it’s close to hitting its bottom of $1.0636 from 2020.

The euro sank to a 15-month low of 124.39 yen on Monday, and the pound fell to 82.01 pence, its lowest level since mid-2016. Over the last month, the euro has lost more than 10% against the Australian dollar.

Over the weekend, fighting in Ukraine increased and attempts at a truce to allow residents to flee the besieged city of Mariupol appear to have failed so far.

Supply Shock Amid the War

Russian assets have plummeted because of the conflict, and prices of Russian exports such as precious metals, oil, and gas have soared when the global economy is already dealing with inflationary pressures.

The Australian dollar rose to a four-month high of $0.7440, breaking through January’s high. The New Zealand dollar broke through a January high of $0.6926, with $0.6976 being the next objective.

The dollar gained ground versus the Swiss franc and the Japanese yen, ending the day up around 0.5 percent against the franc at 0.9207 and 0.2 percent against the yen at 114.93. The dollar index climbed to a 22-month high of 99.220. Last week’s statistics indicated that unemployment in the United States had fallen to a two-year low of 3.8 percent. Yet, inflation data this week is likely to show an annual increase of 7.9 percent.

The European Central Bank, which meets on Thursday, confronts a difficult situation as inflation and growth pressures ease. Many expect it to raise rates later this year.

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