Financial markets calculate that the armed conflict in Ukraine may last much longer, and that the next sanctions imposed on Russia will also affect global economic growth (due to the increase in commodity prices). This directs capital towards classic safe havens, such as the franc and the yen, although the dollar also successfully strives to join this group due to the high demand for US bonds (as evidenced by the recent performance of their yields).
The dollar is rising again
In the G-10 group, the only currencies apart from safe haven that seem to be relatively resistant to geopolitical shocks are the Australian and New Zealand dollars, which may result from a relatively low exposure to risks related to Russia, and possible delayed reaction of Asian economies to recent events (indirect, not direct). Another argument is the expectations towards the policy of the local central banks – especially towards the RBNZ, which itself announces the necessity to make a whole series of interest rate increases in the coming months. However, the largest central banks seem to be divided in their assessments as to further actions – “dovish” comments have been coming in recent days from representatives of the European Central Bank, who indicate that in a situation where the conflict in Ukraine continues, the ECB should not rush to move away from ultra-loose monetary policy. This is one of the main reasons why the euro has been weak in recent days. Yesterday the EURUSD rate returned to the vicinity of Thursday’s low at 1.11, and today it breached it. The Americans look at the matter somewhat differently – the representatives of the FED, who have spoken in the media in recent days, hinted that the expectations regarding the expected interest rate hike on March 16 are right. On their part, and also on the part of politicians, there was greater concern about the need to stabilize energy prices, which is already starting to take place (oil reserves are being released). It’s just that markets may be concerned about how quickly they can replace the supply of Russian oil and gas if their import is blocked. Today we have several important publications on the calendar. This is the estimated HICP inflation for February for the euro zone (will the expectations of 5.4% YoY be beaten? Today we will also get ADP data estimating the increase in new jobs in the US private sector in February, but Jerome Powell’s speech may be of key importance. in the House of Representatives, which may affect the market expectations regarding the curve of interest rate hikes in the coming months. Today we will also know the decision of the Bank of Canada, which may initiate a cycle of interest rate hikes (today a move of 25 bp is expected).
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