February saw a lot of uncertainty in the financial markets. Tensions between Russia and the United States were causing volatility, as the White House maintained that Russia was poised to invade Ukraine while leaving diplomatic options open.
On the other hand, Russian President Vladimir Putin stated that his country “does not want war” in Europe. However, last week Russia began its attack on Ukraine.
Despite the uncertainty, gold prices remained strong, with the metal closing at its highest level since mid-2020.
Nonetheless, the situation is rapidly evolving and remains a volatile stumbling block for markets.
Since June 2020, the euro against the dollar has reached its lowest at $1,1106. That’s a 1.8% drop for the single currency due to Europe’s security crisis. The pair Euro-Swiss franc even hit a seven-year low, dropping as much as 1%. Due to the hostility, investors are selling off their European currencies, contributing to the Bloomberg Dollar Index increasing by 1.4%.
Russia’s invasion of Ukraine has caused gas prices to increase tremendously and to deal with inflation, which is at the highest in decades.
Valentin Marinov, Credit Agricole SA’s head of G-10 currency, said, “FX investors believe that any intensification of the crisis will aggravate the stagflation risks to the euro-zone recovery, delay any meaningful policy normalization by the ECB and weigh on the euro.”
In the throes of the market volatility, the cost of hedging price fluctuations in the euro-dollar pair over the following week reached a new high since December 2020, while a measure of options sentiment over the same period is at its most pessimistic on the common currency since March 2020.
The dollar index recovered some ground after US stocks reversed early losses, with the Nasdaq down roughly 0.1% after falling by 3.5%. The gains in developed markets were concentrated against the euro and the British pound, with the latter falling by 2%.
As of Tuesday, the Japanese yen settled at 115 per dollar, following the 4.8% gain in the last session. Japan is also freezing Russia’s yen to add pressure against Russia further with more sanctions. In January, Japan’s inflation rate dropped to 0.2%, which is much lower than expected by the central bank’s target. However, the Bank of Japan keeps loose policies to help aid in the economy’s recovery and reach the 2% inflation goal.
On Monday, the Russian Rouble hit a new low against the dollar as the West intensified its drive to sanction and isolate Moscow for its invasion of Ukraine.
After Russian President Vladimir Putin put nuclear-armed forces on high alert over the past weekend, the fourth day of the largest attack on a European state since World War Two, investors raced to safe-haven currencies like the Japanese yen and US dollar.
By the end of February, the New Zealand dollar remained above $0.674. This ultimately reversed the losses it had experienced due to the Russia and Ukraine ceasefire talks. In addition, last week, the kiwi hit a 1-month high after the Reserve Bank of New Zealand increased its cash rate to 1% from 25 basis points. Since October, the central bank increased its interest rates for the third time to prevent the high inflation from becoming engrained.
As investors seek safe havens in de-risking assets to shore up their portfolios in the wake of Russia’s invasion of Ukraine, precious metals are surging higher. The price of silver and gold will fluctuate based on what news comes out of Ukraine.
If Russia is willing to negotiate with Ukraine to avoid more bloodshed, gold and silver prices could also decline. This could tempt investors away from secure investments and force them to re-engage the risk dial.
Earlier this week, gold climbed to $1,930 an ounce, its highest level since January 2021. Investors sought refuge as Russian forces approached Kyiv and evaluated the impact of sanctions on Moscow’s global inflation and the economy.
Grain, energy, and metal supply disruptions contribute to price pressures when the Federal Reserve is ready to raise interest rates. Analysts were concerned that inflationary pressures could jeopardize the growth outlook, clouding the prospect for monetary policy and driving up gold hedging demand. Gold rose 6.5% in February, the most since May 2020, after hitting an 18-month high of $1,973.96 last week, making it a popular safe-haven asset amid times of political and financial upheaval.
All eyes are on Federal Reserve chair Jerome Powell as he delivers his speech before Congress on Wednesday and Thursday. This will give traders an insight into the magnitude and timing of interest rate hikes.
On Tuesday, the dollar index climbed 0.7% to 97.3, closing in on its highest level since July 2020, as market participants run to safety as Russia’s military offensive nears Kyiv. Investors are concerned that the conflict’s inflationary risks and supply disruptions could weaken the world economy, obscuring the monetary policy outlook.
According to a report by Kitco News, “The Russia-Ukraine war continues on the front burner of the marketplace to end the trading week. There is still risk aversion in the marketplace. However, it can be argued that marketplace anxiety is not as high as it was early Thursday, amid the reports Russia may negotiate.”
“Also, US and western country sanctions against Russia are being deemed not as severe as expected, including no sanctions on Russian crude oil or natural gas industries.”
If you’re interested in learning how to diversify your investments with Aiternativ’s AI-based investment solution, get in touch with us here. Our portfolio averages an impressive 1-2% a month!