FX Rate News

Gold steadied on Wednesday, with a weaker dollar offsetting pressure from higher U.S. Treasury yields as investors await the first pandemic-era U.S. Federal Reserve interest rate hike.

Spot gold was flat at $1,917.91 per ounce at 1015 GMT, after touching its lowest since March 1 at $1,906 on Tuesday. U.S. gold futures fell 0.3% to $1,923.40.

“Bullion bears are taking a breather as they await the Fed’s highly-anticipated policy guidance,” Han Tan, chief market analyst at Exinity, said.

“Once gold markets have fully digested the Fed’s policy signals, attention could swiftly return to the ever-evolving Russia-Ukraine war,” Tan said, adding that any escalation of the crisis would lead to further gold price rises.

The U.S. central bank is expected to announce its first interest rate hike in three years to tackle soaring inflation.

Gold is highly sensitive to rising U.S. interest rates, and consequently higher yields on benchmark U.S. 10-year Treasury notes, which increase the opportunity cost of holding non-yielding bullion.

Gold was holding up well despite a wider risk-on sentiment, said Quantitative Commodity Research analyst Peter Fertig.

“If there is disappointment that the market has expected more rate hikes that the Fed actually delivers, this could be supportive for gold, and vice-versa,” Fertig added.

The U.S. dollar dipped, providing some support to greenback-priced bullion.

A fundamental change that could take place after the Ukraine crisis ends is higher gold purchases from central banks of countries that are not aligned with the West, as they seek to diversify away from assets like the euro and dollar, said Bernard Dahdah, an analyst at Natixis.

Ukraine’s President Volodymyr Zelenskiy said on Wednesday that peace talks were sounding more realistic, even as Russia’s invasion continued, but more time was needed.

Spot silver eased 0.5% to $24.74 per ounce, while platinum rose 2.7% to $1,012.55.

Palladium gained 2% to $2,471.55, inching away from a Monday’s more than two-week low, amid receding supply fears.

The euro gave back some of its overnight gains on Thursday, after its biggest daily jump since 2016, as traders waited for the European Central Bank and European Union leaders to shed light on the bloc’s policy response to Russia’s invasion of Ukraine.

The common currency on Wednesday benefited from a risk-on shift in sentiment that lifted equity markets and bond yields and saw oil prices drop amid optimism about diplomatic efforts to resolve what the Kremlin refers to as a “special operation” to disarm Ukraine.

The euro has been widely seen as a gauge of Europe’s biggest security crisis since 1945 and touched a 22-month low of $1.0804 earlier in the week, with investors expecting a sizeable impact on European growth.

The foreign ministers of Russia and Ukraine met on Thursday in Turkey, the highest level contact between the two countries since the war began on Feb. 24, but in simultaneous duelling news conferences made clear they had made no progress.

At 1128 GMT, about an hour ahead of the ECB meeting, the euro was trading at $1.1046 , down 0.28% after jumping 1.6% on Wednesday, its best day in nearly six years.

ECB policymakers may give clues about how they intend to balance the risk of higher inflation with the damage war in Ukraine will cause to economic growth.

“We think that normalization of monetary policy is likely to be delayed but not derailed,” Unicredit analysts wrote in a morning note.

Investors currently expect the central bank to gradually phase out its pandemic bond-buying scheme and hike its key interest rate by a total of about 33 basis before the end of the year.

The ECB is trailing other major central banks such as the U.S. Federal Reserve and the Bank of England in the post-pandemic tightening cycle, which has weighed on the euro.

Georgette Boele, an FX strategist at ABN AMRO, said in a note she expected the euro to continue on its downward trend and move lower or even below parity with the dollar.

Recent speculation that EU leaders were considering joint bond issuance to finance energy and defence spending have, however, boosted the currency. The bloc’s summit will begin later today in Versailles, west of Paris.

The dollar index was up 0.19% after falling 1.17% on Wednesday and traders were waiting for U.S. inflation figures, also due later in the day, to further guide expectations for the Federal Reserve’s meeting next week.

While the Fed is widely expected to raise its benchmark overnight interest rate by a quarter of a percentage point, growing calls before the war for a larger half a percentage point rise have quietened.

Economists polled by Reuters forecast the U.S. Consumer Price Index to have climbed 7.9% on a year-on-year basis in February, up from 7.5% in January, although this data will only show a preliminary impact from the surge in oil prices caused by the conflict.

Elsewhere, sterling was down 0.18% at $1.3163 after jumping 0.65% overnight along with the euro, while the safe-haven yen was at 115.95 per dollar, close to its lowest in a month, hurt by a rise in sentiment towards riskier assets like equities.

Bitcoin fell nearly 7%, erasing most of the gains it made the previous day after U.S. President Joe Biden’s executive order requiring the government to prepare reports on the future of money calmed market fears about an immediate regulatory crackdown on cryptocurrencies.

Asian stocks rallied on Thursday, echoing overnight gains on Wall Street where a tumble in oil prices sent stocks higher

The U.S. dollar climbed on Monday as investors weighed the repercussions of a potential U.S. ban on Russian oil imports and gas.

The euro fell as much as 0.61% on the dollar and hit $1.086, while the U.S. dollar index hit a 22-month high and was last up 0.56% at 99.22.

Meanwhile, commodity currencies were swept to multi-month peaks as the war in Ukraine briefly sent oil prices spiking to multi-year highs and stoked fears of a stagflationary shock that could hammer Europe.

The euro is down almost 4% since Russia began what it calls a “special military operation” in Ukraine and is not far from testing its 2020 trough of $1.0636. It also briefly fell below one Swiss franc for the first time since the Swiss quit their euro peg in 2015, hitting 0.9970 before jumping to 1.0051.

“The euro is being picked on,” said Sean Callow at Westpac in Sydney. ”(The war) is on Europe’s doorstep,” he said.

The euro briefly dropped Monday to its lowest since mid-2016 on the pound at 82.01 pence. Sterling has also been weighted by gloom over Europe’s outlook and fell 0.9% against the dollar. Euro/dollar volatility gauges are at their highest since March 2020.

Supply shock
The conflict and harsh western sanctions on Russia have sent Russian assets tumbling and prices of Russian exports such as precious metals, oil and gas soaring at a time when the global economy was already grappling with inflationary pressures.

“This is very bad news for global growth – particularly Europe, given their dependence on gas from Russia,” ANZ analysts said in a note.

Among gainers, the Australian dollar briefly cracked January’s peak to scale a four-month high of $0.7440. The New Zealand dollar also cleared a January top to reach $0.6926.

The U.S. dollar rose against the swiss franc and the yen. It was last up nearly 1% on the franc at 0.9256 and about 0.42% higher on the yen at 115.26.

The European Central Bank, which meets on Thursday, faces a complicated picture as inflation and growth pressures bear down and economists reckon it will wait until late in the year to move rates higher.

The dollar edged higher against the euro on Wednesday, as investors worried about the impact of an escalating conflict in Ukraine on the euro zone’s economic prospects, while commodity-linked currencies strengthened.

The Russian ruble extended its recent slide to hit record lows in Moscow trade as stinging Western sanctions over Moscow’s invasion of Ukraine pummeled Russia’s financial system.

“Developments around the war in Ukraine will remain the main driver of euro price action for the session,” said Shaun Osborne, chief currency strategist at Scotia Bank.

“A continued escalation of conflict with no clear off-ramps for Russia is pulling the euro toward a test of 1.10 in the coming days,” Osborne said.

The euro was 0.1% lower against the dollar, after slipping to a fresh 21-month low of $1.1059, earlier in the session.

“We believe investors should underweight the euro area in both the currency and the equity space given its vulnerability to any further escalation,” analysts at JP Morgan said in a note on Wednesday.

Meanwhile, the U.S. Federal Reserve will move forward with plans to raise interest rates this month to try to tame inflation, even as the outbreak of war in Ukraine has made the outlook “highly uncertain”, Fed Chair Jerome Powell said on Wednesday.

“Judging from just his testimony… it’s pretty much in line with our view that the Federal Reserve is going to hike rates at the next meeting,” said Bipan Rai, North American head of foreign exchange strategy at CIBC Capital Markets, in Toronto.

The U.S. dollar currency index, which tracks its performance against six major currencies, was up marginally at 97.43. The index climbed as high as 97.834, its strongest since June 2020, earlier in the session.

Data on Wednesday showed U.S. private employers hired more workers than expected in February and data for the prior month was revised sharply higher as the labor market recovery gathers steam.

Commodity-linked currencies, including the Canadian, the Australian and the New Zealand currencies were firmer as investors expect to benefit from higher commodity prices.

Oil prices jumped to their highest levels in more than a decade, wheat popped to 14-year peaks and aluminum, benchmark Dutch gas and European coal contracts hit record highs as Western sanctions on Russia over its invasion of Ukraine disrupted Russian commodities exports.

The Aussie was 0.61% higher, while the loonie was 0.7% higher.

“Whether or not that continues depends really on whether or not we continue to see this move higher in oil prices,” CIBC Capital Markets’ Rai said.

The Canadian currency extended gains after the Bank of Canada on Wednesday raised interest rates by 25 basis points to 0.50% in its first hike since October 2018, and said it would continue with the reinvestment phase of its bond buying program.

The Canadian dollar strengthened against its U.S. counterpart on Wednesday but gave up much of its advance as rising Russia-Ukraine tensions weighed on investor sentiment.

The loonie was up 0.2% at 1.2740 to the greenback, or 78.49 U.S. cents, after earlier touching its strongest level since last Friday at 1.2683.

“Recent trading has made it clear that the broader risk mood is the essential driver for the CAD at the moment,” strategists at Scotiabank, including Shaun Osborne, said in a note.

U.S. stocks were sharply lower and the safe-haven U.S. dollar gained ground against a basket of major currencies as Ukraine declared a state of emergency and the West unveiled more sanctions against Russia over its move into eastern Ukraine.

Sanctions were not yet expected to disrupt oil supplies, helping to cap the price of oil, one of Canada’s major exports, after it notched a seven-year high on Tuesday. U.S. crude prices settled 0.2% lower at $92.10 a barrel.

Other commodity-linked currencies also gained ground, including a 5-week high for the New Zealand dollar as the country’s central bank hiked interest rates as expected and signaled a more aggressive path forward than even the most hawkish investor had wagered.

The Bank of Canada is expected to hike next Wednesday for the first time since October 2018.

Canadian government bond yields were higher across the curve, tracking the move in U.S. Treasuries. The 10-year rose 5.1 basis points to 1.977%, approaching last Wednesday’s three-year high at 1.995%.

Currency markets paused for breath on Wednesday after a choppy few sessions as whipsawed markets looked to get a handle on the latest developments in eastern Europe amid a deepening crisis in Ukraine.

Away from the threat of a full-scale Russian invasion of Ukraine, the New Zealand dollar jumped 0.52% after the Reserve Bank of New Zealand raised interest rates, and said more tightening could be necessary.

The euro was holding steady at $1.1325, sterling was pinned at $1.3593, and the safe haven yen and Swiss franc also took a breather having dropped sharply as investors held out hopes a major war over Ukraine could be averted.

Western nations and Japan on Tuesday punished Russia with new sanctions for ordering troops into separatist regions of eastern Ukraine and threatened to go further if Moscow launched an all-out invasion of its neighbor.

One U.S. dollar was worth 115.03 yen in Asia trade, with the greenback having climbed steadily overnight from its near three-week low of 114.48 hit Monday, and 0.9204 francs, after a 0.63% overnight rally.

This left the dollar index which measures the greenback against six peers little changed at 96.063.

“Despite the sanctions on Russia, the FX reaction has been quite muted,” said Carol Kong, a strategist at Commonwealth Bank of Australia.

She said the subdued market reaction and the falls by the dollar and yen overnight, “indicates that market participants are not really concerned about Russia-Ukraine tensions and certainly are not expecting them to spill over to affect the global economic outlook.”

High prices for energy, partly a result of the situation in Ukraine, and other commodities helped the Australian dollar rise to $0.7241 on Wednesday, its highest in nearly two weeks.

Oil rose to nearly $100 a barrel on Tuesday on worries of the Ukraine crisis could cause supply disruptions, and reached its highest level since 2014.

These higher prices were also having an effect in Europe and the dollar tumbled 1.3% on the Norwegian krone on Tuesday.

On the global monetary front, the Reserve Bank of New Zealand gave investors a reminder that central bank policy was still a major factor in currencies.

While its 25-basis-point hike, its third in a row, was widely expected, the central bank revealed it came close to moving by 50 basis points to head off a further pick up in inflation expectations.

It also sharply revised up the projected path for the official cash rate (OCR) to peak at 3.35%, from 2.6% previously and well above market expectations.

Currency markets started the week nervously eying tensions in eastern Europe, with the safe-haven yen not far from a two-week high while the euro was on edge given the energy security and economic implications for Europe of a war in Ukraine.

“Russia-Ukraine tensions are starting to dominate risk sentiment and price action. The market is likely to keep chasing headlines without any clarity on the eventual outcome,” said analysts at Barclays in a note.

Illustrating this, the euro took a small lift early in the Asian session after the office of French President Emmanuel Macron said U.S. President Joe Biden and Russian President Vladimir Putin have agreed in principle to hold a summit on the Ukraine crisis, though it added such a meeting would be impossible if Russia invaded Ukraine.

In turn, the yen lost a modicum of ground on the dollar following the announcement, which comes after a week of heightened tensions spurred by Russia’s military build-up on Ukraine’s borders.

The euro was 0.12% higher at $1.13340 while the yen was at 115.05 per dollar, pausing its earlier drift towards its two-week low of 114.78 touched Friday.

Safe havens like the yen and Swiss franc have been the major beneficiaries of the geopolitical tension in eastern Europe.

Earlier in the session the euro had been hurt and the yen boosted by Sunday’s announcement from the Belarusian defense ministry that Russia would extend military drills in Belarus.

In broad terms, moves in currencies aligned with moves in risk sentiment across asset classes. U.S. share futures slipped in early trading on Monday, before turning positive after news of the possible summit.

When not thinking about the situation in eastern Europe, currency markets are also still concentrating on central bank policy, with divergences in the speed and size of different markets’ interest rate hikes a major factor.

As a result, markets will be closely watching a string of public remarks from U.S. Federal Reserve policy makers this week for any hint that a large 50 basis point rate hike could come at the Fed’s March meeting instead of the more widely expected 25 basis point increase.

The pound was drifting somewhat at $1.36000 in the middle of its recent range, given some support by expectations of another rate hike at the Bank of England’s March meeting, though perhaps weighed by Ukraine tensions.

Public remarks are also due from several BOE policy makers as well.

Bitcoin recovered a little from a mild bruising over the weekend. The world’s largest cryptocurrency was up 2% at around $39,000.

Early on Monday it touched a new two-week low of $38,210.

The safe-haven yen gained more ground on the dollar on Friday as U.S. President Joe Biden said Moscow is preparing a pretext to justify a possible attack on Ukraine, also supporting the Swiss franc and hurting bitcoin.

The dollar slipped to a new two-week low of 114.78 yen in early Asia trade, and is down 0.5% so far this week.

“The support level of 114.63 looks within reach today if more negative headlines on Ukraine emerge,” said CBA analysts in a morning client note, adding that markets were also focused on the Bank of Japan’s policy, as the central bank continues with its policy of yield curve control.

Early morning exchanges of fire on Thursday between Kyiv’s forces and pro-Russian separatists — who have been at war for years and where a ceasefire is periodically violated — have renewed Western fears of an imminent Russian invasion.

U.S. President Joe Biden said Moscow is preparing a pretext to justify a possible attack and the Kremlin expelled an American diplomat.

These tensions also caused the dollar to lose ground on the Swiss franc, with the greenback last at 0.9196 francs, just above Thursday’s two week intraday day low of 0.9186 francs.

At the other end of the risk spectrum, bitcoin was trading around $40,500, around a two-week low, after a tumble late on Thursday left it down 7.6% on the day.

“Crypto has shown us once again that it is a high beta risk asset, and it has a dark sinister look that could morph into something ugly,” said Chris Weston, head of research at Melbourne based brokerage Pepperstone in a morning email.

The euro continued its week of choppy trading based on Ukraine headlines and was at $1.1360, while the pound was at 1.3609 supported by markets betting on more monetary tightening from the Bank of England.

Central bank policy was also a factor in the yen, after the BOJ this week offered to buy an unlimited amount of benchmark 10 year government bonds to underscore its resolve to contain domestic borrowing costs.

Markets have not aggressively tested the BOJ’s 0.25% yield target on those bonds, but yields on other tenors have been rising.

Meanwhile, in the United States, policy makers have continued to publicly debate how aggressively the Federal Reserve should raise interest rates, and whether it should begin with a 25 or 50 basis point hike at its March meeting.

Cleveland Fed President Loretta Mester said late on Thursday the Fed would need to raise interest rates at a faster pace and shrink its balance sheet more quickly than it did after the “great recession”.

The U.S. dollar edged slightly lower on Wednesday as investors became less worried about the risk of Russia invading Ukraine and waited for the release of minutes from the U.S. Federal Reserve’s January meeting.

Equity markets rallied on Tuesday after Russia said it would withdraw some troops from Ukraine’s border. This risk-on tone continued through the Asian session on Wednesday, even though U.S. President Joe Biden warned that more than 150,000 Russian troops were still in a “threatening position”.

Ukraine said the online networks of its defense ministry and two banks were hit by a cyber attack.

In currency markets, the moves were small. The U.S. dollar index edged lower and was down 0.2% on the day at 95.846 by 0831 GMT.

“More optimism around a diplomatic solution in Ukraine may keep applying some pressure on the dollar and the other low-yielders today,” wrote ING FX strategists in a note to clients.

“Given the magnified impact on crude, CAD and NOK should keep struggling to fully cash in on improved geopolitical sentiment,” they added, referring to the Canadian dollar and Norwegian crown.

Long-standing expectations that the U.S. Federal Reserve will raise rates provided a reason for the dollar’s losses to be limited.

Markets are pricing in a 59.5% chance of a 50 basis points hike at the Fed’s next meeting on March 16 and a 40.5% chance of a 25 bps hike.

The minutes from the Fed’s January meeting will be released later in the session.

“We would guess the minutes turn out to be ‘dovish’ – not because they are actually dovish but because it would be hard to out-hawk market expectations at the moment, and we seem primed for a further feel-good risk rally, but will wait to see,′ wrote Elsa Lignos, global head of FX strategy at RBC Capital Markets, in a client note.

As oil prices recovered, the Canadian dollar strengthened slightly against the U.S. dollar but the Norwegian crown was a touch lower on the day.

The Australian dollar, which is seen as a proxy for risk appetite, was up 0.3% at $0.7173 while the New Zealand dollar was also slightly higher on the day.

The safe-haven yen was a touch lower versus the dollar, at 115.770.

The British pound was up 0.1% against the dollar at $1.35565 but steady versus the euro, after data showing UK inflation hit a nearly 30-year high of 5.5%.

The Bank of England has already raised interest rates twice since December and financial markets expect a further rate rise on March 17 after the BoE’s next meeting.

The euro edged higher, up 0.2% on the day at $1.13825.

In cryptocurrencies, bitcoin was little changed, down 0.7% at $44,276.