The dollar, the yen, and the Swiss franc all gained on Monday as investors raced into safe-haven assets on fears that Russia was planning an invasion of Ukraine. The US repeated its promise to defend “every inch” of NATO territory on Sunday. However, Russia might undertake such a move and may establish a surprise pretext for an assault. Moscow has rejected such preparations, accusing the West of being “hysterical”. The dollar index climbed 0.4 percent to 96.328, the highest level since February 1. The one-month implied volatility of the euro-dollar was 7.6%, up from less than 6% at the end of January.
“European dependent on Russian energy renders the euro zone’s cyclical economic performance particularly susceptible in the event of an escalation of the crisis in Ukraine,” according to Commerzbank (DE: CBKG) analysts. After touching its lowest level since February 3 at $1.1305, the euro was down 0.3 percent at $1.1318. The euro fell on Friday as a rush into safe-haven assets outweighed expectations for the European Central Bank to tighten monetary policy. Some of the optimistic euro moods were also muted by ECB president Christine Lagarde’s reiteration that any policy action would be slow.
Fed’s January Meeting Results
The Federal Reserve’s January meeting minutes will come on Wednesday. However, analysts say central bank activity is unlikely to come to the forefront until the threat of escalation over Ukraine has passed. A rush has supported the Japanese yen into safe-haven assets since Friday. At the same time, the Bank of Japan successfully maintained its key bond yield target on Monday. It maintained its ultra-loose monetary policy. The yen gained 0.3 percent versus the dollar and 0.5 percent against the euro, reaching 115.16.
According to ING analysts, “these two currencies, as well as the Swiss franc, should stay bid until and if we obtain signals that a diplomatic solution is in sight.”
“At the start of the new week, markets are taking a wait-and-see attitude to geopolitics,” he added. “Should tensions rise, we see fairly strong downside risks for weak currencies, including the rouble both directly and indirectly, as well as any pro-cyclical currencies, particularly European currencies,” ING said. The Swiss franc increased by 0.4 percent to 1.0452, the highest level since February 3. The most popular cryptocurrency, Bitcoin, was trading at $42,116, down 1%.
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