The dollar jumped to a 20-year high on Wednesday against a basket of other major currencies, after President Vladimir Putin mobilized his reserve to fight in Ukraine and said he was ready to use “all means” to to defend oneself.
In addition to its status as a safe haven, the greenback is also benefiting from bets on a strict monetary policy ahead of a decision by the American Federal Reserve (Fed) expected later in the day, the Dollar index, which compares it to currencies like the yen, the euro or the pound, rose to 110.87 points, a record since 2002. Western countries to want to “destroy” Russia, to resort to “nuclear blackmail” against it and thus signify that it was ready to use nuclear weapons. “Concerns of a potential escalation of the war in Ukraine, with the mobilization of hundreds of thousands of Russian reservists, sends investors to safe havens”, summarizes Susannah Streeter, analyst at Hargreaves Lansdown.
On the currency side, the greenback jumped around 08:35 GMT (10:35 a.m. in Paris) from 0.71% to 0.9901 dollar for one euro and from 0.38% to 1.1337 dollar for one pound. Only the yen gleaned 0.05% to 143.81 yen per dollar while gold appreciated by 0.41% to 1,671.70 dollars an ounce. The eyes of traders will then turn to the Fed meeting, the decision of which will be published after the end of trading in Europe. The monetary institute is engaged in a fierce fight against inflation, and is careful to show the slightest sign of a slowdown in its rate hikes. “Rates should be back to their highest level since 2008,” said Han Tan, an analyst at Exinity Group.
Beyond today’s meeting, “if the Fed signals waves of even stronger rate hikes to come, there will likely be another massive sell-off in risky assets,” he warns. Among the troubled currencies, the pound hit a 1985 low of $1.1305 earlier in the session, battered by the dismal outlook for the UK economy. The Bank of England (BoE) will publish its monetary policy decision on Thursday, and is expected to continue its rate hikes to counter inflation.