The dollar rose on Monday to a two-week high as investors sought safe-haven assets on fears that Russia is preparing to invade Ukraine.
Russia could make such a move at any time and might create a surprise pretext for an attack, according to the United States, which reaffirmed on Sunday a pledge to defend “every inch” of NATO territory. Moscow denied any such plans and has accused the West of “hysteria”.
The dollar index rose 0.4% to 96.328, its highest since Feb. 1.
The rouble was 0.2% higher at 76.99 against the dollar, after tumbling to its lowest since January 28 on Friday as investors ditched Russian assets.
Commerzbank (DE:CBKG) analysts pointed out that “European dependency on Russian energy makes the cyclical economic performance of the euro zone particularly vulnerable in case of an escalation of the conflict in Ukraine.”
The euro was down 0.4% at $1.1309, its lowest level since Feb. 3.
The euro weakened on Friday when a rush into safe-haven assets overshadowed expectations for a monetary policy tightening from the European Central Bank.
ECB president Christine Lagarde had also dampened some of the bullish euro sentiment by reiterating that any policy action will be gradual.
The U.S. Federal Reserve will release its January meeting minutes on Wednesday, but analysts said central bank action was unlikely to return to the spotlight until the risk of an escalation over Ukraine recedes.
A rush into safe-haven assets propped up the Japanese yen since Friday, while the Bank of Japan successfully defended its key bond yield target on Monday, holding the line on its ultra-loose monetary policy.
The yen rose 0.3% to 115.16 against the dollar, and 0.6% to the euro.
“These two currencies (the U.S. dollar and the yen) – as well as the Swiss franc – should remain bid until, and if, we get indications that a diplomatic solution is in sight,” ING analysts said, adding that “markets are adopting a wait-and-see approach on geopolitics at the start of the new week.”
We “flag quite significant downside risks for exposed currencies – directly the rouble and indirectly all pro-cyclical currencies and especially the European ones – should tension escalate further,” ING said.
The Swiss franc was flat against the euro at 1.0479, not far from its highest since Feb. 3 reached on Friday.