Fri, December 02, 2022

Ukraine Tensions, and The Fed’s Rate Debate Drag Euro Down

Ukraine Tensions, And The Fed's Rate Debate Drag Euro Down

On Tuesday morning, the dollar was down in Asia as geopolitical worries over Ukraine weighed on the euro. However, the disagreement over how aggressively the US should raise interest rates limited the dollar’s losses. The US Dollar Index measures the greenback against a basket of other currencies. By 12:29 a.m. ET it dropped down 0.15 % to 96.210. (5:29 AM GMT). The USD/JPY currency pair fell 0.19 % to 115.31. The Australian dollar fell 0.15 % to 0.7115; the New Zealand dollar rose 0.02 % to 0.6616.

The USD/CNY exchange rate fell 0.05 % to 6.3542; the GBP/USD exchange rate rose 0.06 % to 1.3535. In early Asian trade, the euro was at $1.1308 after touching $1.1278 the day before, its lowest level in a week and a half.

Despite cautious swings elsewhere, the dollar remained slightly below a two-week high achieved on Monday.

Russian Invasion and Its Impact on The Market 

On Feb. 16, when some Western media have projected a probable Russian invasion, Ukrainian President Volodymyr Zelenskiy called on residents to raise the country’s flags from buildings and sing the national song in unison. Investors were alarmed by the statements, which were supposed to be “sarcastic,” according to Zelenskiy’s office.

Meanwhile, during the Federal Reserve’s March meeting, officials are still debating how aggressively to start raising interest rates. President of the St. Louis Fed, James Bullard, who had previously advocated for a hefty 50-basis-point boost, reiterated his desire for a speedier rate hike on Monday.

On the other hand, Bullard’s colleagues were more cautious, and the Fed will issue the minutes from its most recent meeting on Wednesday. The Reserve Bank of Australia’s meeting minutes were issued earlier in the day.

According to Commonwealth Bank of Australia senior currency analyst Kim Mundy, Tensions in Ukraine and more aggressive Fed funds rate forecasts are both supportive of the dollar in the short term.

“The simplest way to see which is having the most influence is to look at USD/JPY, which has been trading a little bit softer in the last day or two, indicating that markets are quite aware of what’s going on on the Ukraine border.” Runs to shelter normally benefit the safe-haven yen. The Bank of Japan’s dovish monetary policy should drive the yen further lower compared to the US policy. Last week, the Bank of Japan said that it would purchase an unlimited number of 10-year government notes at 0.25 %. On Monday, however, investors did not challenge this 0.25 % level.

On Monday, the Russian rouble remained volatile but gained ground overall. During the Asian session, it weakened marginally again.

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