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Safe-haven currencies rise on impact from Russian sanctions

Home >  Daily Market Digest >  Safe-haven currencies rise on impact from Russian sanctions

Written by:
Myrsini Giannouli

01 March 2022
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Ukrainian crisis update

The Russian President, Vladimir Putin, signed a decree last Monday recognising the independence of the two separatist regions Donetsk and Luhansk in eastern Ukraine. Immediately afterward he ordered Russian troops into these regions, in a ‘peacekeeping’ mission as he declared, violating Ukraine’s sovereignty. 

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.

On Monday, 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. The delegations included high-ranking officials but not the Presidents of either country, with Ukrainian President Volodymyr Zelenskyy stating that the next 24 hours would be crucial.

Major sanctions against Russia

Chief of NATO Jens Stoltenberg, stated that Russia’s “brutal act of war” shattered peace in Europe, and NATO has positioned additional US troops to the Baltic nations bordering Russia. Leaders across the world have condemned Russia’s actions and are imposing severe sanctions against Russia. Australia, Canada, and Japan have announced sanctions against Russia, targeting Russian banks and oligarchs. Britain has moved to sanction Russian individuals and banking institutions in the UK and the UK PM Boris Johnson stated that the UK will introduce sanctions against Russia's President Vladimir Putin and Foreign Minister Sergey Lavrov. 

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 announced further sanctions, targeting Russia’s defense minister and military chiefs and 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 Rubble. 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. 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 Rubble have plummeted to historic lows last week. On Monday, the Rubble went into free fall in the wake of western sanctions against Russia, plummeting by almost 30%. 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

  • EUR: Monthly German and Italian Preliminary CPI, German, French, Italian and Spanish Manufacturing PMI, and EU Manufacturing PMI
  • USD: ISM Manufacturing PMI, ISM Manufacturing Prices, Monthly Construction Spending
  • GBP: MPC Member speeches, Final Manufacturing PMI, Net lending to Individuals
  • JPY: Final Manufacturing PMI, 10-year Bond Auction


The dollar is considered a safe-haven currency and rises when a risk-aversion sentiment prevails, as investors turn towards safer assets. The dollar index rose to 97.4 on Monday, boosted by the escalation of the crisis between Russia and Ukraine, as well as by the announcement of sanctions against Russia. Severe sanctions against Russia, culminating in the exclusion of Russian banks from the SWIFT system, have triggered fears of a global economic crisis. The USD retreated to 96.6 later on Monday, as markets had time to absorb the latest developments. Reports of peace talks between Russian and Ukrainian delegations in Belarus also contributed to the currency’s decline.

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 monthly Rising inflation rates in the US support the dollar, amidst 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 last week 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. 

Several economic and inflation indicators for the dollar will be released on Tuesday, including ISM Manufacturing PMI, ISM Manufacturing Prices, Monthly Construction Spending. These may cause volatility for the dollar, since economic data may influence the Fed’s future monetary policy, as the next meeting of the US Central Bank in March is drawing near. 



The Euro fell sharply against the dollar early on Monday, with EUR/USD plunging as low as 1.112, as a risk-aversion sentiment prevailed following the announcement of severe sanctions against Russia. The currency pair rose again during the day, as markets began to absorb the news. 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. 

Economic data released last week for France and Germany, which are among the Eurozone’s leading economies were overall positive. 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.

Annual Final CPI and Core CPI data released last week showed that inflation rates in the Eurozone remain at high levels. Annual EU inflation rates reached 5.1% in January, more than double than the ECB’s goal of 2.0%, prompting the EU Central Bank to take action. 

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.

Several financial indicators are set to be released on Tuesday for the EU’s leading economies, including 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, while the CPI data are indicators of economic inflation and may influence the ECB’s fiscal policy.

EURUSD 1hr chart



The sterling fell sharply against the dollar on Monday morning, as news of Russian sanctions buoyed the safe-haven dollar and pushed other currencies down. GBP/USD plummeted below the 1.335 level support, but recovered a little later, rising to 1.34. 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 1.335 and further down at 1.317.  

BOE Governor Bailey testified last week before the Parliament's Treasury Committee at the Monetary Policy Report Hearings on inflation and the economic outlook He stated 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.  

Financial indicators released last week 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 further 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 swiftly and may be able to withstand a tightening of the BOE’s monetary policy. 

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 Tuesday for the pound, including Final Manufacturing PMI and Net lending to Individuals and their release may affect the sterling, although high volatility is not expected. In addition, MPC Members are due to deliver speeches on Tuesday and may cause some volatility for the pound, in case their speeches contain hints of the BOE’s intentions.

GBPUSD 1hr chart



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 is considered a safe-haven currency and falls when risk appetite grows. 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.

Annual inflation rates in Japan are far below the BOJ’s 2% goal and the BOJ reiterated last week that it would continue to buy 10-year JGBs to achieve its inflation target. Low inflation rates in Japan and a weakening economy are steering the BOJ towards maintaining its ultra-accommodating monetary policy. Last week, the BOJ reiterated 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. 

The Yen rose against the dollar on Monday, with the USD/JPY trading as low as 114.8. 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.

Scheduled fiscal events for the Yen on Tuesday include the release of the Final Manufacturing PMI and the 10-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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