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Monday, 30 January 2023
As the Ukraine war drags on, the dollar rises, with Powell in the spotlight.

As the Ukraine war drags on, the dollar rises, with Powell in the spotlight.

2022-10-31

As the market became risk-averse on Monday due to the ongoing Russia-Ukraine conflict, the US dollar stayed strong. Investors lost faith as the crisis escalated as Ukraine refused to cede the besieged southern port city of Mariupol, citing Russian warnings of a humanitarian catastrophe.

As the crisis worsened, it dashed any dreams for diplomacy that had been floating about the previous week. Traders also considered the Fed’s hawkish statements in the aftermath of US President Joe Biden’s talk with Chinese President Xi Jinping. President Biden warned China that if it supported Russia’s invasion of Ukraine, it would face repercussions. Markets were also upset after the People’s Bank of China (PBOC) decided not to decrease mortgage lending rates in the first quarter of this year, keeping them steady.

As the European Union (EU) considers imposing an oil embargo on Russia, rising tensions surrounding the Ukraine conflict have re-ignited the spike in oil prices. On Monday, EU leaders and Biden will meet to finalise the West’s reaction to Moscow.

In the lack of top-tier economic news on both sides of the Atlantic, traders are now looking forward to speeches by ECB President Christine Lagarde and Fed Chair Jerome Powell later in the day. The S&P 500 futures were down 0.34 percent on the day heading into the European session, indicating a risk-off market profile, while the US dollar index was last spotted up 0.10 percent, trading at 98.35.

Because of the risk-off flows-driven dollar’s strength, the EUR/USD loses its recovery momentum and reverts to the red zone below 1.1050, stabilising Treasury rates. The unified currency overlooks ECB policymaker Robert Holzmann’s aggressive views in support of a rate rise.

GBP/USD extended its weekly highs correction, presently pressed around 1.3150. The Bank of England raised benchmark rates by 25 basis points but expressed reservations about future tightening plans. Inflationary pressures continue to wreak havoc on the economy. This week’s focus will be on UK inflation and retail sales figures.

USD/JPY As the Fed-BOJ monetary policy divergence played out, the market consolidated slightly below six-year highs of 119.41 set last Friday. In its March meeting, the Bank of Japan kept its policy settings untouched again again.

The revived geopolitical concerns provide support for gold, while upward efforts may be limited below the 21-day moving average of $1,941 due to a stronger dollar.

Bitcoin has dipped marginally after the previous week’s comeback climb, trading around $41,000. Around $2,850, Ethereum lacks a distinct directional bias.

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