The Ukraine crisis marks a potential military conflict on the European continent. As a result, the safe-haven US dollar and Japanese yen strengthened.
The US dollar index (DXY) has bounced since yesterday and continues to climb above the 96.00 threshold in today's trade (25/January). While market participants look forward to the FOMC meeting that will start later tonight, tensions on the Ukrainian border are grabbing the world's attention. The potential for military conflict resulted in EUR/USD slumping in the range of 1.1300, while the safe haven currencies USD and JPY actually strengthened.
Public attention to the Ukraine crisis initially surfaced when the White House last week expressed concern about an increase in the number of Russian troops on standby at the Ukrainian border. The market initially ignored the news, but the tension gradually rose.
US President Joe Biden has called on diplomats' families to leave Ukraine immediately, while considering sending US troops to counter the threat of a Russian attack. NATO even immediately prepared troops and added a fleet and fighter jets to Eastern Europe amid Russian criticism.
Francesco Pesole of ING Bank said the crisis could prompt Moscow to limit energy supplies to Europe. As a result, the euro's risk premium increases.
George Vessey, currency strategist at Western Union, also said, "Risk assets are retreating as investors seek safer bets in traditional safe havens such as the Japanese yen and gold which are currently near record 2-month highs. Along with concerns against the Fed, escalating tensions in Ukraine and fears of a Russian invasion have added to the 'risk-off' feel."
This situation had a wide impact in a short period of time on the forex market. The Comdoll tumbled, as did the pound sterling and the euro. Moreover, the market is waiting for the announcement of the results of the upcoming FOMC meeting which may include crucial topics such as "Fed rate hike" and Quantitative Tightening.
Markets are fully pricing in the Fed's first rate hike in March 2022, followed by three more hikes until the end of the year. The US dollar has the potential to be more resilient if the Fed raises interest rates faster. However, the greenback is also at risk of being hit if the Fed hints it will substitute a rate hike with Quantitative Tightening.
"The rationale for the Fed to potentially follow through on a March rate hike before its June meeting - even in early April - is very compelling, and there is a risk that the market will still have to reassess (the Fed's 2022 rate hike total)," said Ray Attrill. , head of FX strategy at National Australia Bank, was quoted as saying by Reuters, "Geopolitical risk just adds a new layer to support safe havens."
Post a Comment for "Ahead of FOMC, Ukraine Crisis Strengthens US Dollar "