By Matthew Vassallo
As the world holds its breath ahead of what many are calling the most important peace talks in a generation, the markets have reacted to the devastating developments in Ukraine, with the USD gaining over 2% against the EUR whilst also making significant inroads against GBP.
With Ukrainian & Russian political leaders set for talks today, which will be held on the Ukrainian/Belarus border, the Russian head of state Vladimir Putin significantly heightened concerns amongst global leaders over the weekend following his instructions to Russia’s military nuclear arsenal on high alert. Whilst this may be a scare tactic ahead of today’s key talks it’s yet another high-level threat, which is likely to cause further unrest amongst the Eastern bloc and has sent shivers through the global markets.
The Russian central bank has taken steps to try and help alleviate growing pressure on their economy, which has intensified due to another round of global economic sanctions, by more than doubling its key interest rate over the weekend after the rouble slumped by more than 30% against the USD. With European & global leaders putting on a united front in support of Ukraine, the current economic sanctions that have been put in place to constrict Russia’s financial ability to fund the war, have sent a ripple effect through the markets.
With economic analysts predicting a sharp contraction in the global financial sector, Russia may add to the current plight by cutting off gas supplies to Europe. Whilst this would certainly have a detrimental effect on their own crumbling economy, it could lead to an immediate sell-off of European bonds & assets by investors, which would cause further destabilisation, the ramifications of which would likely be felt throughout Europe.
With so many potential negative connotations attached to the current uncertainty investors have flocked to the USD, which as regular readers will know is inextricably linked to the relative prosperity (or lack of it) in the global financial markets.
Thus far GBP seems to be holding its position against the EUR and despite a downturn of approximately 2 cents against the USD, it is still trading around a cent higher than last month’s lows.
Looking ahead and this week’s headlines are likely to be dominated by developments in Ukraine, although investors will also be keeping an eye on UK & Eurozone inflation data along with Eurozone Unemployment figures, released intermittently over the course of Tuesday & Thursday.