The ruble collapsed, the dollar strongly up – the FX market’s reaction to the Russian invasion

Dov Herman

3 years ago

The dollar appreciated after Russian troops invaded eastern Ukraine this morning. In a televised speech, the President of Russia, Vladimir Putin, announced the start of a “military operation”. At the same time, he called on Ukrainian troops to lay down their arms and announced decisive action against external interventions.

The dollar went up strongly

As a result of the Russian invasion of Ukraine, high volatility is observed on the currency market, and energy resources become much more expensive. The dollar is appreciating, and gold is also appreciating. – Brent crude oil prices have exceeded $ 100, and natural gas prices in Europe should also rise as there is not a sufficient alternative to Russian gas for Europe. – ING analysts emphasized. We wrote about the situation on the crude oil market here: Brent crude oil broke $ 100. per barrel, the black scenario has come true – In the US, you should closely follow the progress of work on the Menendez bill in Congress. It has been dubbed “the mother of all sanctions laws” and, given the events of tonight, it seems very likely that it will be adopted. – experts from ING noted.

The ruble scrubs the floor

The crucial question is how far these sanctions will go. The first round of sanctions imposed earlier this week did not make too much of a impression.
The dollar / ruble exchange rate (USD / RUB) soared in the morning to the level of 90. This is higher than the local highs of 2015 or 2016.
Dollar to ruble exchange rate. Source: tradingview.com The war in Ukraine may affect the global macroeconomic situation, as well as change the valuation of interest rate increases, among others for the Federal Reserve. Earlier, some institutions, such as Bank of America, priced in up to 7 increases later this year.

While the monetary tightening cycle by the Federal Reserve may be priced lower again, we are currently still inclined to see the dollar outperform European currencies. – We still believe that the DXY index (strongly related to European currencies) will increase to 97 points. – ING analysts forecast.
Dollar index (DXY). Source: tradingview.com The euro fell to around $ 1.12 overnight. and has dropped by 0.66% to $ 1.123 since the start of the session. This is relatively little considering the seriousness of the situation and the volatility, although increased, is not that high. – EUR / USD has so far remained high during the crisis, but given the uncertainty, we still believe it is possible to go down to $ 1.12. or even a re-test of the minimums at $ 1.1120. – experts from ING commented.
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