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Dollar gains strength amid Russian sanctions

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Written by:
Myrsini Giannouli

02 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.

Fierce battles continued in Kyiv and other major Ukrainian cities, while officials from the Ukrainian military have stated that Russian forces have reduced the pace of the offensive. 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.  

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.

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 defense 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. German Chancellor Olaf Scholz announced on Sunday plans to invest more than 2% of its GDP in military spending to update its defense systems, in a major shift in the country’s policy. 

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

Russia has threatened to retaliate against EU sanctions, and it is likely that the EU, which relies on Russia for key imports, will pay a heavy price. The price of oil and other key commodities such as corn and wheat is already soaring and prices are expected to climb further as the crisis unfolds, contributing to rising inflation rates in the Eurozone. 

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 on Monday and continued falling on Tuesday, 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. 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 last week. On Monday, the Rouble went into free fall in the wake of western sanctions against Russia, plummeting by almost 30% and falling even further on Tuesday. The Russian Central Bank announced that the Moscow stock exchange would remain closed on Monday, following the currency’s collapse. The Russian Central Bank also 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

  • Oil: OPEC-JMMC Meetings, US crude oil inventories
  • JPY: Quarterly Capital Spending, Annual Monetary Base
  • EUR: Annual CPI Flash Estimate, Core Annual CPI Flash Estimate, Spanish and German Unemployment Change, German 10-y Bond Auction
  • USD: ADP Non-Farm Employment Change, Fed Chair Powel speech
  • GBP: Annual BRC Shop Price Index, Monthly Nationwide HPI, MPC Members speeches


The dollar index rose to 97.5 on Tuesday, boosted by the escalation of the crisis between Russia and Ukraine, as well as by the announcement of sanctions against Russia. 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 fell on Tuesday and Treasury yields also went down to six-week lows.

Last week, Core PCE data released on Friday, rose 5.2% from last year, showing that prices rose at their fastest rate in 39 years, while rising inflation rates in the US support the dollar, 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 the markets, with many investors predicting a sharp benchmark interest raise of 50 base points in March.

Important US economic indicators released on Tuesday, included: ISM Manufacturing PMI, ISM Manufacturing Prices, Monthly Construction Spending. These were mostly positive for the US economy, providing support for the dollar, as signs of economic recovery may steer the Fed’s monetary policy towards a more hawkish direction. 

This week, the USD price is expected to receive a further boost from the war in Ukraine, but 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 is due to testify on the Semi-Annual Monetary Policy Report before the House Financial Services Committee, in Washington DC on March 2nd and 3rd. His speeches 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.

Several indicators are scheduled to be released on Wednesday for the dollar and especially ADP Non-Farm Employment Change, which is a key employment indicator and may cause some volatility for the dollar.



The Euro fell sharply against the dollar on Tuesday, with EUR/USD going past the 1.112 level support, plunging as low as 1.11, its lowest rate since June 2020. A risk-aversion sentiment prevailed, as diplomatic talks between Russia and Ukraine on Monday failed to yield any results. The possible effects of the severe sanctions against Russia on the global economy also turned investors’ attention towards safer assets. 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. 

Financial data released on Tuesday for the Eurozone included: Monthly German and Italian Preliminary CPI, German, French, Italian, and Spanish Manufacturing PMI, and EU Manufacturing PMI.  The PMI data are indicators of economic health in the Eurozone and were mostly positive for some of the EU’s leading economies. Indications of economic recovery in the Eurozone increase the chances that the ECB will pivot towards a more hawkish policy to tackle rising inflation rates and benefit the Euro. The CPI data are indicators of economic inflation and showed that inflation rates in the Eurozone remain at high levels. CPI inflation figures in Germany reached 5.1%, and provided some support for the Euro, as rising inflation rates may prompt the ECB to take action to tackle inflation.

Germany’s 10-yer Bund yield dropped 0.16% and Italy’s 10-year bond yield fell 0.27%, as traders shied away from equity market risk. The German DAX tanked on Tuesday, reaching a yearly low.

The war in Ukraine has triggered a risk-aversion sentiment putting pressure on the Euro. However, 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.

On March 2nd, Annual CPI Flash Estimate and Core Annual CPI Flash Estimate data are scheduled to be released for the Eurozone. These are key inflation indicators, which may influence the ECB’s policy and their release might cause some volatility for the Euro. Spanish and German Unemployment Rates are also scheduled to be released on Wednesday and may cause some volatility for the Euro.

EURUSD 1hr chart



The sterling fell sharply against the dollar on Tuesday, as a risk-aversion sentiment buoyed the safe-haven dollar and pushed other currencies down. GBP/USD plummeted below the 1.335 level support, trading as low as 1.33. 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 Tuesday for the pound, included: Final Manufacturing PMI, Mortgage Approvals, and Net lending to Individuals. These indicators were mostly positive for the British economy, 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. 

Financial data are scheduled to be released on Wednesday for the pound, including the Annual BRC Shop Price Index and Monthly Nationwide HPI, and their release may affect the sterling, although high volatility is not expected. In addition, MPC Members are due to deliver speeches on Wednesday which may cause some volatility for the pound.

GBPUSD 1hr chart



The Yen edged higher against the dollar on Tuesday, with the USD/JPY testing the 114.8 level support. Both the Yen and the dollar are considered safe-haven currencies, but the Yen had performed poorly last week and began to pick up the pace on Monday. 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 has been affected by the crisis in Ukraine these past few weeks, exhibiting price volatility every time there are fresh developments. 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 Wednesday include the release of the Quarterly Capital Spending and Annual Monetary Base 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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