Ukraine developments dominate exchange rates



Last week, European leaders held an emergency meeting to discuss the EU’s response to the situation in Ukraine. On Friday, US President Joe Biden issued a final warning to the Kremlin of extraordinary and crippling economic sanctions against Russia in the event of an attack against Ukraine. Ceasefire violations and shelling have been reported during the past few days near the eastern Ukrainian borders, with each side accusing the other of the incidents. To get more news about topfx, you can visit wikifx.com official website.

Mounting tensions between Russia and Ukraine at the end of last week turned investors’ attention towards safe heaven currencies, boosting the dollar and the Yen, while the Euro retreated.

On Monday morning, hopes of a peaceful resolution to the crisis in Ukraine were revived. The White House announced that US President Joe Biden has agreed ‘in principle’ to a meeting with his Russian counterpart Vladimir Putin, as long as Russia did not invade Ukraine. The Russian side appeared to be more hesitant about a summit between the two leaders, with Kremlin spokesperson Dmitry Peskov stating that there were "no concrete plans" for a meeting between the two presidents.

Hopes for a diplomatic resolution to the issue were diminished later on Monday, as Vladimir Putin signed a decree recognizing the independence of the two separatist regions Donetsk and Luhansk in eastern Ukraine. Immediately afterward, he ordered Russian troops in these regions, in a ‘peacekeeping’ mission as he stated, effectively invading Ukraine.

The EU and the US have condemned the Russian President’s actions and are prepared to enforce economic sanctions on Russia. The EU foreign policy chief Josep Borrell stated that EU members states have unanimously agreed upon a package of new sanctions against Russia. Britain has already moved to sanction Russian individuals and banking institutions in the UK, while it is reported that further sanctions are on the table.

Safe-haven currencies, such as the dollar and the Yen, are expected to benefit from these recent developments as demand for safer assets grows. However, Russia’s move against Ukraine has been anticipated for some time now and may have largely been priced in by markets. Further developments are expected and may cause high market volatility in the coming weeks.
US Flash Manufacturing PMI, Flash Services PMI, and CB Consumer Confidence data were released on Tuesday and were mostly positive for the US economy. These are leading indicators of economic health and provide support for the dollar, as signs of economic recovery may steer the Fed’s monetary policy towards a more hawkish direction.

Rising inflation rates in the US support the dollar, amidst expectations that the Federal Reserve might tighten its monetary policy to tackle inflation. Monthly Retail and Core Retail Sales released last week were higher than expected, indicating that the US economy is moving in a positive direction, also fuelling expectations of a sharp increase in the Fed’s interest rates.

The Federal Reserve has so far indicated that it will tighten its monetary policy to fight soaring inflation rates in the US. It is not clear, however, to what extent the US Central Bank intends to increase its interest rates, and there is wide speculation on the subject, causing uncertainty and market volatility. A series of rate hikes have already been priced in by the markets, with many investors predicting a sharp benchmark interest raise of 50 base points in March.

The dollar index moved higher than the 96 levels on Tuesday, supported by economic data and rising geopolitical tensions. The dollar is considered a safe-haven currency and rises when a risk-aversion sentiment prevails, as investors turn towards safer assets.

Several economic and inflation indicators for the dollar will be released throughout the week and especially on February 24th and 25th and may cause volatility for the dollar, since economic, inflation, and employment data may influence the Fed’s future monetary policy. Especially important inflation indicators are the Core PCE data, which is scheduled to be released on February 25th. The next meeting of the US Central Bank in March is drawing near and indicators of inflation are expected to affect the Fed’s decision to raise its benchmark interest rate.