L’euro is gloomy. The European currency is currently falling once morest the dollar, reaching its lowest level since June 2020, in a market very worried regarding the invasion of the Ukraine by Russia.
At 6 a.m. this Wednesday in Paris, the currency was trading at 1.1122 dollar for one euro. Russia further intensified its offensive in Ukraine on Tuesday, prompting the Europeans to further toughen their sanctions once morest Moscow. As a result of the war, “European currencies have been in trouble since this weekend”, according to Matthew Ryan, an analyst at Ebury, who notes that “the US dollar appears to be the safe haven of choice”.
The demand for cash benefits the dollar
Moreover, with the sanctions that hit Russian banks banned from the Swift system and froze the assets of the Central Bank of Russia, “there is a strong demand for liquidity which benefits the greenback”, underlines Christopher Vecchio of DailyFX. The differential in bond yields on 10-year debt between Europe and the United States also works in favor of the dollar. “Yields on US Treasury bonds are not falling as much as for European bonds,” explains the analyst, citing as an example the 10-year rate of Italian debt which fell during the day from 1.87% to 1, 39%.
Above all, “this Russian episode might cause a banking crisis in Europe given the previous links between the European Union and Russia”, worries Christopher Vecchio. “The market now completely rules out an interest rate hike from the European Central Bank,” the analyst further asserts, as the Fed is expected to give its first turn of the screw in two weeks, which would also benefit the dollar.
