Rising geopolitical tensions lead to jittery currency trading
The safe-havens received a temporary boost on Tuesday, as fears over an escalation in the Russia-Ukraine conflict led to a brief bout of risk aversion in financial markets.
The moves we witnessed in FX were an archetypal illustration of a flight to safety, with risk assets selling off, while the safe haven dollar, yen and Swiss franc outperformed. The moves were relatively contained and temporary in nature, however, and by the end of London trading, the dollar was actually back trading where it began the day.
We see this as a consequence of two factors. Firstly, markets likely viewed Putin’s revised doctrine as nothing more than a threat, rather than the crossing of a red line that kick starts a wider conflict or the use of nuclear weapons. We also had some calming remarks from Russian Foreign Minister Sergei Lavrov, who said that the country would ‘do everything possible’ in order to sidestep the start of a nuclear war.
Author
Matthew Ryan, CFA
Ebury
Matthew is Global Head of Market Strategy at FX specialist Ebury, where he has been part of the strategy team since 2014. He provides fundamental FX analysis for a wide range of G10 and emerging market currencies.
