Geo-politics replaces COVID-19 Risk for Currency Markets

As the President of Russia Vladimir Putin announces a “special military operation” in Eastern Ukraine, geo-politics has surpassed COVID-19 as the biggest worry and source of volatility and risk for currency prices.

With tensions running high the euro sank against the safe-haven Swiss franc to 1.03 francs per euro, the lowest since 2015.

 

 
The ruble already ranked among the worst-performing currencies in 2022, with losses exceeding 7% against the dollar. However after Russia commenced an apparent invasion of Ukraine the ruble dropped towards 90 to the greenback and the price of oil jumped above $100 a barrel for the first time since 2014.

Russia is the second largest oil exporter after Saudi Arabia, so any disruption to the supply of oil from Russia impacts the global price of this important commodity.

Due to the Eurozone’s reliance on gas from Russia, the euro looks to be the most vulnerable to these events with EUR/USD dropping to 1.11 whereas it had been approaching 1.15 less than two weeks ago.

Numerous analysts are trying to forecast the potential financial ramifications of any prolonged conflict with Germany and the wider Eurozone facing a prolonged recession.

The Eurozone’s inflationary threat is still a concern, but it has taken a backseat with the recent events of Ukraine.

Obviously we are entering a period of volatility for FX markets and the euro, ruble and other oil/gas related currencies. The volatility and duration of which will depend on the decisions made in Washington, Brussels, Moscow and Kiev.

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