After the Kremlin claimed there were no solid arrangements for a conference between the Russian and U.S. presidents on Ukraine, the risk-on feeling that had buoyed the euro and weighed on the dollar gradually evaporated on Monday.
Russia and Joe Biden have agreed in principle to explore a potential road out of Europe’s largest military crisis in decades, which caused investors to withdraw money from safe-havens. However, the level of hostility remained high.
The Russian security agency FSB said that a shell launched from Ukrainian territory had damaged a border guard station, while Ukrainian officials warned that hackers were ready to launch big assaults on government institutions, banks, and the defense industry on Tuesday.
G10 FX Strategy Head at CIBC Jeremy Stretch stated that optimism has “dissipated” in light of recent news reports indicating that Britain thinks Russia is still plotting an attack. Stretch was asked whether he thought that the online trading Forex market was being cautiously optimistic, to which he responded that there was very little optimism in the air. As of 12:24 GMT, the euro was up 0.13 percent at $1.1334 against the dollar, having gained close to 0.6 percent at one point in the morning trading session. European economic recovery is showing signs of a resurgence because of the lifting of coronavirus limitations on the bloc’s leading service sector, according to Eurostat statistics.
It was also at this period that the dollar index regained most of its losses and dropped just 0.13 percent versus key competitor currencies. European stock markets fell abruptly after a bullish start, echoing the shift in sentiment about the potential of a de-escalation.
For their part, safe-haven currencies that have benefitted from Russia’s military buildup on Ukraine’s borders have regained some of their lost popularity. The Swiss franc gained 0.54 percent to $0.9164 per U.S. dollar.
A peaceful resolution to the Ukrainian problem is still far off, but more unrest is on the horizon. Participants in the currency markets are also keeping an eye on central bank policy to get a sense of how quickly and how much interest rates will be raised in key economies.
The Effect Of Russia-Ukraine War On Currency Market
US dollar positions against G10 currencies (excluding NOK and SEK) fell for a fifth week in a row in the week ending 15 February, according to CFTC statistics on FX positioning.
Geopolitical concerns in Ukraine seem to have little effect on positioning, as the safe-haven and pro-cyclical currency sectors appear to be mixed. Short holdings in the yen have risen to 33% of open interest, while short positions in the Swiss franc have dwindled somewhat.
Although the CFTC does not provide data on the positioning of Norwegian crowns and Swedish kronor, both EUR and GBP showed an increase in net positioning in the week ending February 15th.
Currently, EUR/net USD’s positioning is near the middle of its standard deviation range, with net longs equivalent to 7% of open interest, and has been since the beginning of the year (+8% of open interest YTD). We believe that the present positioning data shows that markets have not priced in a significant amount of geopolitical risk into the EUR/USD, leaving it highly exposed to further escalation of Russia-Ukraine tensions, despite the recent ECB hawkish shift.
Conflict’s Impact On Crypto And Global Markets
In light of rising tensions between Russia and Ukraine, Bitcoin and other major cryptocurrencies have taken a beating this week. According to CoinDesk’s statistics, bitcoin was trading at $36,649 by 2:30 a.m. ET on Tuesday, down about 6.5 percent in the previous 24 hours. After falling below $40,000 this weekend and continuing to fall as Ukraine’s situation worsens, the world’s most valuable cryptocurrency is expected to decline even more.
President Vladimir Putin has ordered Russian soldiers to enter two separatist territories in eastern Ukraine, which he recognized as independent nations on Monday, after approving their status as autonomous republics.
Nearly a dozen US and Western officials told CNN that the recognition of the separatist territory appeared to be the first salvo of a broader possible military action against Ukraine.
Russia’s deployment of soldiers in eastern Ukraine sparked a global stock market sell-off and a spike in crude oil prices to $99 a barrel on Tuesday.
Early trade on the European stock exchanges showed a decline. London’s FTSE 100 fell 0.4 percent, while France’s CAC 40 lost 0.8 percent. The DAX index in Germany fell 1.4 percent. After plunging more than 10% on Monday, Russian equities fell 6.9% on Tuesday, while the ruble lost ground versus the dollar for the fourth straight day.
Stocks in Japan and China also declined, with the Nikkei falling 1.7% and the Shanghai Composite losing 1.1%. It was Hong Kong’s largest one-day drop in five months for the Hang Seng Index (HSI).
A senior market analyst at Oanda stated on Tuesday, “It seems like the situation might rapidly worsen at any time, and that’s likely to keep investors on edge for now.” We may be on the verge of something horrible, and that’s feeding into the market’s pessimism,” he said.