Euro volatility jumps on escalation of tensions in Ukraine

London

THE euro one-month volatility level jumped on Tuesday (Feb 22) to its highest in 15 months, as the single currency was hit by rising risk aversion amid a gas price surge and escalation of tensions in Ukraine.

Russian President Vladimir Putin ordered troops to two breakaway regions in Ukraine, sending the euro one-month volatility to its highest level since November 2020, as the West vowed sanctions in response to Putin's troops in Ukraine.

The euro edged 0.2 per cent higher versus the US dollar to US$1.1331 by 0910 GMT, after touching an eight-day low.

"The surge in European gas prices and the rise in concerns over Russian supplies to the region poses a risk to growth in Europe and therefore has the potential to significantly impact the timing of ECB (European Central Bank) policy tightening going forward, which is a EUR negative factor," said Jane Foley, head of FX strategy, at Rabobank in London.

As Putin's move accelerated a crisis the West fears could unleash a major war, the Russian rouble climbed back above 80 to the US dollar to its highest level since November 2020.

Ukraine's hryvnia currency fell 1 per cent to a seven-year low.

In the meantime, safe-haven currencies were in demand. The yen hit a near three-week high and the Swiss franc versus the US dollar remained near a one-month high reached on Monday.

The yen edged about 0.1 per cent higher 114.8 after briefly touching 114.50 to the US dollar, while the Swiss franc slipped 0.4 per cent versus the euro at 1.039, after hitting one-month high of 1.0339 versus the single currency.

The euro drifting back below 1.04 versus the Swiss franc confirmed market concerns that any escalation of the Ukraine crisis would weigh on the euro zone, analysts said.

"Although there is already a lot of bad news baked into the price, tensions in Ukraine have the capacity to push EUR/CHF back to the recent 1.03 low," said Rabobank's Foley. Another safe haven, the US dollar, edged 0.1 per cent lower at 96.013 against a basket of currencies including the euro, as investors await further developments in the crisis.

The US and its European allies are poised to announce sanctions against Russia on Tuesday.

Cryptocurrencies were also under pressure, with bitcoin dropping to an almost three-week low of US$36,370. REUTERS