Dollar Strengthens Against Almost Everything on Russia Sanctions
Demand for greenback is rising as investors seek shelter
Equities slide as risk sentiment sours, funds focus on SWIFT
The dollar is rising against virtually every peer as fallout from the sanctions levied against Russia supercharge demand for the world’s reserve currency. Treasuries also rallied.
Traders are piling into the most liquid asset as sanctions on Russia’s central bank and lenders reverberate through global markets, with talk that the Federal Reserve may have to intervene in global markets. U.S. and European stock futures fell, while currencies from the euro to the rand dropped.
“USD is king, offering liquidity and safe haven attributes,” said Rodrigo Catril, a currency strategist National Australia Bank Ltd. “When trouble hits the road, you need to look for cover.”
King Dollar
USD has risen against every Group-of-10 peer in early Asia trading Monday
Bloomberg
Signs of funding strains became apparent in major money markets early Monday as spreads widened for very short-term eurodollar contracts. The gap between future Libor and Fed rates -- the FRA/OIS spread -- widened nine basis points for one-month contracts, the most since March 2020. March eurodollar contracts dropped relative to June peers, a classic sign of funding stress.
That comes as Credit Suisse Group AG warned of how the decision to exclude some Russian banks from the SWIFT messaging system could impact money markets as payments are missed and giant overdrafts are made. Strategist Zoltan Pozsar drew comparison with how the Fed had to supply dollars during the height of the pandemic panic in March 2020.
Market Uncertainties to Remain Very High for Weeks: Lee
Homin Lee, Asia macro strategist at Lombard Odier, discusses the current state of markets amid the escalations in Ukraine, the possibility of a global recession and his investment strategy. He speaks on “BloombergDaybreak: Asia.”
A gauge of the dollar rose as much as 0.7%, extending on last week’s 0.4% gain. Global bonds rallied, with 10-year Treasury yields dropping 7 basis points to 1.89% while yields on Australia’s 10-year government debt slumped as much 10 basis points.
The ruble was indicated 28% lower versus the dollar in offshore trading on Monday. The Russian currency has fallen more than 6% in onshore trade to underperform all its emerging-market peers in February as traders brace for President Vladimir Putin’s response to the toughened sanctions.
“Europe is bearing the brunt of the invasion’s initial impact, with higher energy costs hurting consumers and the level of sanctions pressuring European growth, with a knock-on effect for U.S. growth prospects,” Scott Glasser, chief investment officer at Clearbridge Investments and investment specialist Jeff Schulze, wrote in a note.
SWIFT Risk
“Russia’s ex-communication from SWIFT would isolate Russia financially from the world and could cripple its economy,” Jason Schenker, president of Prestige Economics, wrote in a note.
SWIFT is used for trillions of dollars worth of transactions around the globe.
Credit Suisse’s Pozsar has also estimated that Russia has about $300 billion of foreign currency held offshore -- enough to disrupt money markets if it’s frozen by sanctions or moved suddenly to avoid them.
READ MORE
Australian Bonds Rally as Russia Sanctions Spurs Haven Demand
SWIFT Ban Means the Fed May Need to Be Ready With Dollars
Russia Bonds, Now Junk, Set to Reel From Central Bank Sanctions
Bonds Are a Complicated Haven as Ukraine Stokes Inflation Risk
— With assistance by Garfield Clinton Reynolds, Natalia Kniazhevich, Benjamin Purvis, and Elizabeth Stanton
(Updates with price moves, adds chart and comment)
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EUR
Euro Spot
1.1165EUR
-0.0103-0.9141%
NAB
NATL AUST BANK
28.94AUD
+0.03+0.10%
CSGN
CREDIT SUISS-REG
7.84CHF
+0.31+4.09%
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