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Safe-haven currencies rise as Ukrainian crisis continues

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Written by:
Myrsini Giannouli

18 February 2022
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Important Calendar Events

  • JPY: Annual National Core CPI
  • GBP: Monthly Retail Sales
  • EUR: Monthly French Final CPI, Current Account, Consumer Confidence
  • All Currencies: G20 Meeting
  • USD: FOMC members speeches, Fed Monetary Policy Report


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 on Wednesday 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 release of the FOMC minutes on Wednesday however, did not provide clear indications of an aggressively hawkish policy as some investors expected and the dollar index dipped as low as 95.68. 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. The FOMC minutes pointed to a hawkish Fed policy, with multiple rate hikes this year, but investor expectations were higher. 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 was under pressure earlier this week, following reports that several Russian troops would withdraw from the Ukrainian border. The dollar is considered a safe-haven currency and rises when a risk-aversion sentiment prevails, as investors turn towards safer assets. The announcement brought hopes of de-escalation of the crisis as the probability of a diplomatic resolution to the Russia – Ukraine crisis grew and risk appetite was renewed. 

The dollar index climbed a little on Thursday, rising above 96.0, as tensions between Russia and Ukraine rose again. On Friday, several FOMC members are due to deliver speeches and the content of their speeches will be scrutinized by traders, who aim to gain insight into the US Central Bank’s future monetary policy.


Monthly EU Industrial Production data released on Wednesday, showed that the Eurozone economy is gaining strength, giving the Euro a boost. Indications of economic recovery in the Eurozone increase the ECB's chances to pivot towards a more hawkish policy to tackle rising inflation rates. Mounting inflationary pressures in the EU seem to be finally catching up with the ECB, which might be forced to tighten its monetary policy within the year. The ECB seems hesitant to shift towards a more hawkish policy though, as a new debt crisis is looming in the EU. 

The Euro gained strength against the dollar early on Wednesday, supported by the release of the Eurozone financial indicators, as well as by hopes of de-escalation of the Russia – Ukraine crisis. On Wednesday however, the Euro lost ground against the dollar, as geopolitical tensions were re-ignited. 

US and NATO officials stated that there has been no sign that Russia has withdrawn troops from the Ukrainian borders. Secretary-general of NATO Jens Stoltenberg stated that there is no evidence of de-escalation and that Russia was building up troop numbers. There are reports that another 7,000 troops have been added to the already sizeable forces of Russian forces near the Ukrainian borders, with a recent tally exceeding 150,000 troops. The Kremlin has denied the allegations, but US Secretary of State Antony Blinken backed up the claims. In addition, the largest cyberattack in the history of Ukraine was launched against two of its banks and its defense ministry, with the Ukrainian side accusing Russia of launching a cyberwar against its institutions.

An emergency meeting of European leaders is scheduled to take place later on Thursday, to discuss the EU’s response to the situation in Ukraine. France’s foreign minister stated in an interview that Europe has its concerns over Russia exercising control on neighboring countries and that the EU needs to update its security framework. 

The EUR/USD traded sideways on Thursday, around the 1.136 level. If the currency pair goes up, it may encounter resistance at 1.148 again and further up at 1.169, while if it falls, support may be found around 1.275 and further down at 1.118. 

Minor financial data are scheduled to be released on Friday for the Euro, including Monthly French Final CPI, Current Account, and Consumer Confidence, and may cause slight volatility in the currency.

EURUSD 1hr chart


UK inflation data released on Wednesday showed that inflation rates in the UK have reached a 30-year peak, supporting expectations of a more hawkish BOE policy. Annual CPI and Core CPI data released on Wednesday were higher than expected, with headline inflation rising by 5.5% within the past year, up from 5.4% last month.

Soaring inflation rates in the UK increase the probability of another BOE rate hike and many investors expect another back-to-back rate hike on the BOE’s next policy meeting in March. There is wide speculation that the BOE will follow an aggressively hawkish policy to tackle rising inflation rates in the UK. The Bank of England has already performed two back-to-back rate hikes, bringing its interest rate to 0.5% and expectations of more frequent and sharp rate hikes are boosting the pound. 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 uncertain political climate in the UK is putting pressure on the pound though, as British PM Boris Johnson’s position is still precarious. His ratings continue to fall and a recent poll has shown that half of Britons think he has performed poorly as a PM. His recent plan to end all COVID-19 measures in the UK abruptly may have disastrous effects and put over 500,000 at risk. This week, the results of the Metropolitan Police investigation into the ‘party gate’ scandal are due, and a damning report might signal the end of Johnson’s premiership. 

The sterling was supported by expectations of a hawkish BOE policy and GBP/USD climbed to 1.363 on Thursday. If the GBP/USD rate goes up again, there may be resistance at the 1.375 level, while if it declines, support may be found at 1.332 and further down at 1.317.  

Monthly Retail Sales data are due to be released on Friday, which is the primary gauge of consumer activity and are indicators of economic health in the UK. The release of economic data might cause some fluctuation in the currency, ahead of the BOE’s next meeting in a few weeks.

GBPUSD 1hr chart


The Yen declined earlier this week, as reports of Russian troops withdrawing from the Ukrainian borders raised hopes of de-escalation of the crisis between the two countries. The Yen is considered to be a safe-haven currency and falls when risk appetite grows. As however, the withdrawal of the Russian troops has been disputed by NATO and US officials, investors have been turning to safe-haven assets once more and the Yen gained strength on Thursday. 

The Yen rose on Thursday against the dollar, with the USD/JPY rate testing its 114.8 level support. If the USD/JPY pair climbs again, it may find resistance at the 116 level, while if it declines, support might be found at 113.48.

Low inflation rates in Japan and a weakening economy are steering the BOJ towards maintaining its ultra-accommodating monetary policy. The BOJ’s dovish monetary policy is 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. 

On Thursday, Annual National Core CPI is scheduled to be released, which is an indicator of inflation in Japan and may cause some volatility for the Yen. 


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Written by:
Myrsini Giannouli

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