The United States Dollar is largely trading on the front foot this morning, along with other safe haven assets and currencies, as geopolitical tensions in Ukraine and Russia return to the forefront of the global picture today
Overview
The Russian Defense Ministry this morning confirmed that Ukrainian forces launched a long-range strike that hit inside of Russian borders with US-made made ballistic missiles. President Joe Biden only gave the all-clear for Ukraine to use US-made missiles in such a manner a few days ago. It’s clear that Russia has perceived Biden’s decision to allow this action as a marked escalation of an active conflict that is now 1,000 days old today, and also responded overnight with an update to the nation’s nuclear doctrine. Russian President Vladimir Putin overnight signed a decree that said Moscow could respond with nuclear force to a conventional missile attack that was in any way supported by a nuclear power. Putin has several times through this conflict threatened nuclear escalation, though, keeping the haven bid at least for the Dollar relatively muted but definitely there. Other haven currencies like JPY and CHF are moving much more strongly in response to the news, in part because of the US’ involvement in such an escalation on both sides of the war.
Treasury yields moved far more than USD in response to geopolitical news, with two-year yields retreating to their lowest in nearly two weeks. This move was also buttressed by reports that former Federal Reserve governor Ken Warsh has emerged as a favorite for the job of Treasury Secretary in the incoming Trump administration. Warsh through his tenure traditionally leaned more hawkish and was also a White House economic policy advisor during the Bush administration before his stint at the Fed. All told, risk aversion is the popular trade of the day amist both international and domestic uncertainty as conflict escalation and the prospect of a global trade war loom large over the minds of investors.
What to Watch This Week…
- UK CPI, Wednesday
- S&P Composite Flash PMI NOV, Friday 9:45AM
- Monex USA Online is always open
EUR ⇓
The single currency is under pressure this morning, at one point sliding more than a third of a percent against USD before paring off the move. Geopolitical tensions are clearly at the forefront of investors’ minds today, but the release of CPI for the Eurozone for October did help EUR stem off some of its losses. The annualized figure showed that while September’s release was revised downward, inflation picked back up slightly in October to come at 2.0% year-over-year. This was enough for ECB Governing Council member Madis Muller to state that he doesn’t currently see any reason the ECB should cut rates by more than 25 basis points in December.
JPY ⇑
Japanese Yen is the biggest winner in the G10 this morning, currently sitting roughly half a percent stronger against the Buck. JPY’s haven bid has heavily come back into play as the Ukraine-Russia war enters yet another new escalatory stage – investors see JPY and Japan’s economic as more insulated from the conflict than that of the US and are moving toward the currency in kind. One-week volatility for the USDJPY pair at one point spiked by 60 basis points before paring down the move. The pair was previously under pressure following comments from Japanese Finance Minister Katunobu Kato referencing ‘no change’ in the government’s stance on intervention.
