2022/02/14 (002) Column

USD Dollar Hits Two-Week High,
While Russian Ruble Weakens Further


DAX below 15000 & Euro Stoxx 50 Hits 10-week Low
Gold Hits 12-Week High & Crude Oil Remains at 7-Year High on Supply Woes
e dollar gained further ground against its major peers on Monday, hitting an almost two-week high of 96.32 earlier this session as the risk-off mood, backed by escalating geopolitical tensions in Eastern Europe, is boosting the currency safe-haven demand. US security adviser Jake Sullivan told CNN that Russia could launch an invasion of Ukraine this week. President Biden told Ukrainian President Zelensky that the US would respond swiftly and decisively to any further aggression against Ukraine. Aside from safe-haven bids, a looming policy tightening cycle from the Federal Reserve supercharged the existing bullish sentiment. Investors now await the FOMC minutes on Wednesday and speeches from several Fed officials during the week for any updates on the size of a federal funds rate hike next month.Dollar Hits Two-Week High

The dollar gained further ground against its major peers on Monday, hitting an almost two-week high of 96.32 earlier this session as the risk-off mood, backed by escalating geopolitical tensions in Eastern Europe, is boosting the currency safe-haven demand. US security adviser Jake Sullivan told CNN that Russia could launch an invasion of Ukraine this week. President Biden told Ukrainian President Zelensky that the US would respond swiftly and decisively to any further aggression against Ukraine. Aside from safe-haven bids, a looming policy tightening cycle from the Federal Reserve supercharged the existing bullish sentiment. Investors now await the FOMC minutes on Wednesday and speeches from several Fed officials during the week for any updates on the size of a federal funds rate hike next month.

US Stock Indices Mixed Mid-Session

The main US stock indices were mixed around mid-session on Monday, with both the Dow Jones Industrial Average and the S&P 500 slightly lower and the Nasdaq Composite above the flatline as investors were looking for clues on Fed tightening plans and monitoring geopolitical tensions in Eastern Europe. In the morning, St. Louis Federal Reserve President James Bullard reiterated his call for 100bps of hikes by July 1st during the interview on CNBC and more speeches and interviews are expected from Fed officials this week. Meanwhile, Russian Foreign Minister Sergey Lavrov suggested to President Putin that Moscow use diplomacy to obtain concessions from the West following repeated warnings for the US that the invasion of Ukraine could start any day. On the corporate side, software maker Splunk jumped 8% following news of a $20 billion takeover bid from Cisco Systems.

Crude Oil Remains at 7-Year High on Supply Woes

WTI crude futures traded close to $94 per barrel on Monday, after hitting almost $95 earlier in the session, underpinned by supply disruption woes. The US warned that the Kremlin was planning an imminent invasion of Ukraine, which would lead to harsh sanctions being slapped on Russian energy exports. At the same time, OPEC+ nations continued to struggle to meet output targets despite monthly pledges to increase production by 400,000 barrels per day until March. Last week, the IEA said the shortfall of OPEC+ output from its target widened to 900,000 bpd in January. Meanwhile, investors continued to monitor developments in a possible revival of the 2015 Iran nuclear deal, but a senior Iranian security official said Monday that progress in talks was becoming “more difficult”.

Gold Hits 12-Week High

Gold rose to above $1,870 an ounce on Monday, the highest in over eight months and extending a nearly 3% gain last week as inflationary and geopolitical risks boosted its safe-haven appeal. Diplomatic efforts to avert a Russian attack on Ukraine stepped up after the US warned at the weekend that a Russian invasion of Ukraine could take place in the middle of the week. Still, Moscow has denied intending to invade Ukraine despite the build-up of some 130,000 soldiers on Ukraine’s borders. Moreover, concerns over rising consumer prices added to the bullish sentiment after data showed US inflation hit 7.5% in January, the highest in 40 years.                                            
 


Russian Ruble Weakens Further

The Russian ruble weakened further to 77 per USD in mid-Februay, the lowest since late January, as increased geopolitical tensions continued to weigh on Russian assets. US warnings of an imminent Russian invasion in Ukraine and the threat of massive economic consequences from finance ministers in the G7 group erased the steady gains the currency had made during the first two weeks of February. Meanwhile, Central Bank of Russia Governor Elvira Nabiullina said the bank has still not made a decision on when to resume foreign exchange purchases, as the bank deems the ruble to still be very volatile.

Chinese Yuan Pressured by Dollar Strength

The offshore yuan weakened past 6.36 per dollar on Monday, remaining under pressure from growing policy divergence as upcoming rate hikes in the US contrasted with monetary easing in China. The People’s Bank of China recently slashed several key short- and medium-term interest rates, with analysts expecting more easing measures in the coming months including a 50 bps cut in the reserve requirement ratio. A former Chinese regulator also warned that policymakers could take further measures to keep the yuan stable.