US dollar dominates markets as Russian invasion of Ukraine sparks market turmoil

The US dollar stormed higher on Thursday as Russia’s invasion of Ukraine saw investors flock to safe-haven assets.

Meanwhile, the pound if firming in early trade today, with GBP/EUR buoyed at €1.1976 and GBP/USD climbing to $1.3417. GBP/CAD is ticking up to C$1.7154, while GBP/AUD and GBP/NZD hold steady at AU$1.8631 and NZ$1.9988, respectively.

With the Russia-Ukraine war set to continue to dominate headlines today, could we see the US dollar extend its positive trajectory?

What’s been happening?

The US dollar was propelled sharply higher yesterday, with USD exchange rates rocketing to new year-to-date highs after Russia’s military action in Ukraine sparked market turmoil, with the plunge in equities particularly underpinning safe-haven demand.

GBP/USD and EUR/USD closed the European session down by around 1%.

Thursday’s developments raised considerable questions over the global economic outlook, with markets fearing the potential for energy supplies to be disrupted and how this could further stoke inflationary pressures.

Unsurprisingly EUR investors were particularly concerned about the knock-on impact on the Eurozone economy, although the euro’s losses were cushioned somewhat by the single currency’s safe-haven status.

The pound, meanwhile, fared particularly poorly on Thursday as the Ukraine crisis saw GBP investors scale back their expectations for the Bank of England’s (BoE) next interest rate hike.

What’s coming up?

Looking ahead, it seems safe to assume the situation in Ukraine will continue to act as a key catalyst of currency movement through the remainder of the week.

This is likely to see the US dollar maintain is bullish momentum as geopolitical uncertainty drives considerable risk-off flows.

On the data front, the publication of the latest PCE price index could influence expectations for the Federal Reserve’s March rate hike this afternoon. Another above forecast inflation reading could keep hopes alive for a half-percentage increase next month.

For EUR investors the focus will be on the Eurozone’s latest economic sentiment index. But will an upbeat print have any chance of offsetting concerns over Ukraine?

Finally in the absence of any notable UK data releases, the pound could struggle to attract support, particularly if GBP investors continue to reprice their BoE rate hike expectations.