Dollar rises as Ukraine tensions rise

The dollar rose to a two-week high against a basket of currencies on Monday, boosted by increasing geopolitical risk over Ukraine and the Federal Reserve’s likely hawkish stance at its policy meeting this week.

Until recently, markets mainly had ignored Russia’s massing of troops on Ukraine’s borders, but tensions have recently risen. NATO said it was putting forces on alert and strengthening eastern Europe with more ships and fighter jets, which Russia condemned to escalate tensions.

The US is considering transferring some troops stationed in western Europe to eastern Europe in the coming weeks, and US President Joe Biden has ordered diplomats’ families to leave Kyiv.

According to ING Bank strategist Francesco Pesole, markets are pricing more of a risk premium into the euro as fears grow that Russia’s standoff with the West over Ukraine will force Moscow to cut energy supplies to Europe.

Since January 14, the dollar index has risen by 1.5 percent. Several banks have raised their forecasts for the Fed’s policy tightening speed and magnitude during this time, a picture that should become clearer at the end of its two-day meeting on Wednesday.

On Friday, data showed that speculators reduced their net long positions in the dollar to their lowest level since September while adding a net $2.6 billion of euro positions.

Currencies

The Chinese yuan was one of the few currencies to defy dollar gains, reaching its highest level since May 2018 at 6.324.

With China’s central bank cutting interest rates and property sector concerns subsiding, flows to Chinese markets have increased, particularly into government debt.

Bitcoin’s value has halved since reaching a record $69,000 in November, and it has now fallen below $34,000 for the first time since last July.

It fell as low as $32,967, while ether, the world’s second-largest cryptocurrency, fell to around $2,244, its lowest level since July. The dollar index increased by 0.25 percent, while the euro fell by 0.14 percent to $1.1324. The euro also fell against the safe-haven Swiss franc, reaching 1.0298 at one point, its lowest level since May 2015. However, the euro later rose by about 0.04 percent.

The yen, another safe-haven currency, initially strengthened against the dollar before falling 0.01 percent to 113.69 per dollar.

 

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