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Dollar edges higher as war boosts safe-haven assets

Home >  Daily Market Digest >  Dollar edges higher as war boosts safe-haven assets


Written by:
Myrsini Giannouli

03 March 2022
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Ukrainian crisis update

Last Thursday, Russian forces launched a full-scale invasion of Ukraine, with Russian missiles raining down on Ukrainian cities, and explosions were heard even in Kyiv. The attack was wide-ranged, taking place by land, air, and sea, and was reported as the biggest attack by one state against another in Europe since World War II. 

In a provocative and threatening move on Sunday, Russian President Vladimir Putin ordered his country's deterrence forces, which include nuclear weapons, onto their highest state of alert, following universal condemnation and increased sanctions on Moscow.

Talks between Russian and Ukrainian peace delegations started early on Monday in Belarus. Diplomatic talks between Russia and Ukraine failed to yield any results though, driving investors towards safe-haven assets.

On Tuesday and Wednesday, fighting intensified again, with fierce battles in Kyiv, Kharkiv, and other Ukrainian cities. Bombing attacks in major Ukrainian cities have resulted in hundreds of casualties, including civilians and children. Ukrainian President, Volodymyr Zelenskiyy, stated that Russia was trying to “erase Ukraine, its history and its people”.

Hundreds of thousands of refugees are fleeing Ukraine and their numbers are expected to reach millions, creating an additional issue for the EU, which has vowed to accept all refugees entering its borders from Ukraine.  

Major sanctions against Russia

Leaders across the world have condemned Russia’s actions and are imposing severe sanctions against Russia. Australia, Canada, Britain and Japan have announced sanctions against Russia, targeting Russian banks and oligarchs. 

The US President, Joe Biden, announced last Tuesday the "first tranche" of measures against Russia, which aim to deliver a hard blow on the country’s economy, including sanctions on Russia's sovereign debt so that the country can no longer raise money for its state financing. 

The EU has targeted Russia’s defence minister and military chiefs, imposing visa bans and freezing assets of high-ranking Russian officials. Germany has suspended the approval of the Nord Stream 2 pipeline, a move that may cause an energy crisis in Europe, which depends on Russia for approximately 40% of its gas and send the prices of energy-related assets even higher. 

European Commission chief Ursula von der Leyen announced on Sunday that the EU would tighten sanctions on Russia, target Russian ally Belarus with measures, and finance the purchase and delivery of weapons to Ukraine, marking the first time in its history that the EU would provide arms in a war. The EU has also announced plans of banning Russian aircraft from European airspace, with many countries advising their citizens to leave Russia while there are still commercial flights available. 

On Saturday, the US, the EU and their allies announced that they would be blocking a "certain number of Russian banks" from access to the SWIFT banking system and imposing restrictions on Russia’s Central Bank. These are nuclear economic measures, that will effectively cut off Russian banks from the international financing system and undermine the Russian Central Bank’s ability to support the collapsing Rouble. This move, however, is expected to cause fallout in western economies and especially in countries with financial interests in Russia, which was the main reason that Germany held off as long as possible from agreeing to this measure.

Impact of Russia – Ukraine crisis on currencies, commodities

The ECB, the Fed and other major Central Banks are already trying to strike a balance between soaring inflation rates and economic woes since the onset of the pandemic, and the war in Ukraine is going to complicate matters further. Sanctions against Russia will likely drive the price of key commodities up, especially energy-related commodities, further increasing inflation.

Global stock markets and especially European stock markets fell heavily at the beginning of the week, as traders weighed the global economic implications of Russia’s invasion of Ukraine. Fears that sanctions against Russia would have a severe impact on the global economy have been pushing markets down. 

European shares edged higher on Wednesday, with the regional Stoxx Europe 600 and the German DAX adding small gains. Safe-haven currencies, such as the dollar and the Yen, have climbed during the past few days, as a risk-aversion sentiment prevails and investors turn towards safer assets.

The Russian stock market and the Rouble have plummeted to historic lows. On Monday, the Rouble went into free fall in the wake of western sanctions against Russia, plummeting by almost 30%. Moscow stock exchange was closed on Monday, following the currency’s collapse and remains closed to date. In addition, the Russian Central Bank decided to double its interest rate on Monday, from 9.5% to 20%, in an attempt to restore balance to the country’s markets.

Important Calendar Events

  • JPY: Consumer Confidence, 30-year Bond Auction
  • EUR: Spanish, Italian, French and German Services PMI, Eurozone Final Services PMI, Unemployment Rates, Monthly PPI, ECB Monetary Policy Meeting Accounts
  • USD: Fed Chair Powel speech, ISM Services PMI, Unemployment Claims, Revised Nonfarm Productivity, Revised Unit Labour Costs, Factory Orders
  • GBP: UK Final Services PMI


The dollar index rose to 97.8 on Wednesday, boosted by the escalation of the crisis between Russia and Ukraine. The dollar is considered a safe-haven currency and rises when a risk-aversion sentiment prevails, as investors turn towards safer assets. Severe sanctions against Russia, culminating in the exclusion of Russian banks from the SWIFT system, have triggered fears of a global economic crisis. US stock markets edged higher on Wednesday though, and treasury yields went up from Tuesday’s six-week lows.

ADP Non-Farm Employment Change data released on Wednesday showed employment growth for the US, further boosting the dollar. US economic indicators released on Tuesday for the dollar were also mostly positive for the US economy. Signs of economic recovery provide support for the dollar as they may steer the Fed’s monetary policy towards a more hawkish direction. 

Rising inflation rates in the US support the dollar as well, amid expectations that the Federal Reserve might tighten its monetary policy to tackle inflation. A series of Fed rate hikes have already been priced in by markets, with many investors predicting a sharp benchmark interest raise of 50 base points in March.

This week, FOMC announcements are also expected to affect the dollar, as the next meeting of the US Central Bank on March 16th is drawing near. Fed Chair Powel’s testimony on the Semi-Annual Monetary Policy Report before the House Financial Services Committee will continue for the second day on Thursday. His speech and the ensuing question and answer sessions are expected to cause some volatility for the dollar and may provide insight into the Fed’s monetary policy.

A large number of indicators are scheduled to be released on Thursday for the dollar, including ISM Services PMI, Unemployment Claims, Revised Nonfarm Productivity, Revised Unit Labour Costs and Factory Orders. These are indicators of employment and economic health for the US and may affect the dollar ahead of the next Fed meeting on March 16th.



The Euro continued declining against the dollar early on Wednesday, with EUR/USD going past the 1.112 level support, plunging as low as 1.10, its lowest rate since June 2020. A risk-aversion sentiment prevailed, as there seems to be no end in sight for the crisis in Ukraine. The possible effects of the severe sanctions against Russia on the global economy also turned investors’ attention towards safer assets, buoying the dollar. The Euro/USD rate traded sideways later on Wednesday, testing the 1.112 support. If the currency pair goes up, it may encounter resistance at 1.148 and further up at 1.169, while if it declines, support may be found at the 1.112 level. 

Annual CPI Flash Estimate and Core Annual CPI Flash Estimate data released on Wednesday for the Euro showed that inflation rates in the Eurozone continued rising, with EU Flash CPI climbing to 5.8%. These are key inflation indicators and provided some support for the Euro, as rising inflation rates may prompt the ECB to take action to tackle inflation. Prices of key commodities in the Eurozone, and especially energy-related commodities, are soaring and may finally force the ECB to rethink its dovish policy amid soaring inflation.

European shares edged higher on Wednesday after plummeting on Tuesday, with the regional Stoxx Europe 600 and the German DAX adding small gains. Germany’s 10-yer Bund yield dropped 0.16% on Tuesday, as traders shied away from equity market risk, but recovered a little on Wednesday.

A large number of financial indicators are scheduled to be released on Thursday for the Euro, including Spanish, Italian, French and German Services PMI, Eurozone Final Services PMI, Unemployment Rates, Monthly PPI. These are indicators of economic health and employment for some of the Eurozone’s leading economies and the EU as a whole and may cause some volatility for the Euro. ECB Monetary Policy Meeting Accounts are also scheduled to be released on Thursday and may provide some insight into the EU Central Bank’s future direction.

EURUSD 1hr chart



The sterling recovered some of its lost ground on Wednesday, with the GBP/USD rate rising to 1.34, even as the dollar continued to rise, supported by increased risk-aversion sentiment. If the GBP/USD rate goes up again, there may be resistance at the 1.364 level, while if it declines, support may be found at 1.335 and further down at 1.317.  

Financial data released on Wednesday and Tuesday for the pound, including Nationwide HPI and Final Manufacturing PMI, were mostly positive and benefitted the pound. The British economy is showing signs of expansion and recovery from the effects of the Omicron Covid-19 wave in the UK, providing support for the sterling. The British PM Boris Johnson has lifted all Covid restrictions in his “living with Covid” plan and the British economy is expected to grow and may be able to withstand a tightening of the BOE’s monetary policy. 

BOE Governor Bailey stated last week that the BOE estimates inflation rates to reach a 30 year high of 7.25% by April, increasing the probability of another BOE rate hike on the BOE’s next policy meeting in March. Markets have already priced in approximately six BOE rate hikes this year and if these predictions come true, they will signal a swift return towards pre-pandemic interest rates.  

The political climate in the UK has not improved significantly and is putting pressure on the pound, although the public’s attention has turned towards the war in Ukraine. British PM Boris Johnson seems to be weathering the storm, although his position is still precarious and he is focusing his diplomatic efforts on the Ukraine invasion to restore his reputation. 

UK Final services PMI are scheduled to be released on Thursday. This is a key indicator of economic health and may cause some volatility for the sterling, ahead of the BOE’s next meeting.

GBPUSD 1hr chart



The Yen lost ground against the dollar on Wednesday, with the USD/JPY rate rising past the 115.6 level. Both the Yen and the dollar are considered safe-haven currencies, but the Yen is outperformed by the dollar, although it had begun to pick up the pace at the beginning of the week. If the USD/JPY pair climbs further, it may find resistance at the 116.3 level, while if it declines, support might be found at 114.8 and further down at 113.4.

The Yen gained strength over the past week, as risk-appetite diminished over the war in Ukraine and investors turned towards safer assets. The currency, however, has not picked up pace as much as other safe-haven assets, as the BOJ’s fiscal policy is keeping the Yen down.

Low inflation rates in Japan and a weakening economy are steering the BOJ towards maintaining its dovish monetary policy, creating a gap in interest rates with other major Central Banks, especially with the Fed and the BOE. As a result, the Yen becomes less appealing to investors, pushing its value down. 

Scheduled fiscal events for the Yen on Thursday include the release of the Consumer Confidence Indicator and the 30-year Bond Auction and may influence the currently somewhat, although significant fluctuations are not expected given the BOJ’s unyielding stance.

USDJPY 1hr chart


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Written by:
Myrsini Giannouli

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