US dollar hits 2-week high on tensions over Ukraine

London

THE US dollar rose on Monday (Feb 14) along with the yen and the Swiss franc as investors rushed into safe-haven assets amid fears that Russia is preparing to invade Ukraine. The move came a day after the US said Russia could attack Ukraine at any time.

Russia has denied having any such plans, though a senior official said it was ready to fire on foreign ships and submarines that illegally enter its waters.

The dollar index rose 0.4 per cent to 96.351, its highest since Feb 1, at 11.33 am GMT. Euro-dollar 1-month implied volatility was at 7.45 per cent , the highest since November 2020, from below 6 per cent at the end of January.

The rouble was flat at 77.08 against the dollar, after tumbling to its lowest since Jan 28 on Friday as investors ditched Russian assets.

"European dependency on Russian energy makes the cyclical economic performance of the eurozone particularly vulnerable in case of an escalation of the conflict in Ukraine," Commerzbank analysts said. The euro was down 0.4 per cent at US$1.1301, its lowest level since Feb 3.

The euro weakened on Friday when a rush into safe-haven assets overshadowed expectations for monetary policy tightening from the European Central Bank (ECB).

ECB president Christine Lagarde also dampened some of the bullish euro sentiment by reiterating that any policy action will be gradual.

The US Federal Reserve will release its January meeting minutes on Wednesday, but analysts said central bank action was unlikely to return to the spotlight until the risk of an escalation over Ukraine recedes.

The rush into safe-haven assets has boosted the Japanese yen since Friday, while the Bank of Japan successfully defended its key bond yield target on Monday, holding the line on its ultra-loose monetary policy. The yen strengthened 0.3 per cent to 115.16 against the dollar, and 0.6 per cent versus the euro.

"These two currencies (the U.S. dollar and the yen) - as well as the Swiss franc - should remain bid until, and if, we get indications that a diplomatic solution is in sight," ING analysts said, adding that "markets are adopting a wait-and-see approach on geopolitics". REUTERS