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Forex Report: Dollar Slumps Over Ukraine Worries

Published 03/04/2014, 04:53 AM
Updated 09/16/2019, 09:25 AM

The U.S. dollar slumped against the yen and the Swiss Franc as fears over a possible war between Russia and the Ukraine prompted a sell-off of risk assets and greater demand for safety. The crisis escalated over the weekend as Russian President Vladimir Putin moved Russian troops into the Crimea region. This area used to be part of Russia until Nikita Khrushchev issued it to the Ukraine in the early 1950s. Today, Crimea is home to the biggest overseas naval base belonging to Russia. The move ignited concerns that Western leaders will impose economic sanctions on Russia. In the U.S., the Commerce Department announced that Personal Spending went up 0.4 percent in January, surpassing predictions for a hike of 0.1 percent. The release also confirmed that Personal Income went up 0.3 percent, after posting flat in December. Commodities gained and Gold prices advanced to over a four-month high in London. The shiny metal gathered momentum as the Ukraine indicated that it has placed its military forces on combat alert as Vladimir Putin obtained approval from Parliament to send the troops to the South. According to sources, Russia’s President has ignored warnings by U.S. President, Barack Obama. The latter has called other world leaders in an effort to find a diplomatic resolution, but for now, they’ll hold emergency meetings at the U.N. Bullion rallied the most, rebounding from the 28 percent drop it sustained in 2013. Gold for immediate delivery climbed 1.8 percent to $1,350.37 an ounce, and Futures for April delivery surged 1.9 percent to $1,346.30 on the New York Mercantile Exchange, where the trade volume during early morning hours climbed 84 percent above average in the last 100 days.

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The euro traded lower against the U.S. dollar, and other peers including the yen, on fears over the growing chance that tensions between Russia and the Ukraine could escalate into a full-blown war. On the data front, the euro region’s Manufacturing activities posted a decline for February, signaling that the E.U.’s economic recovery remains fragile. Other releases pointed to a drop in France’s Manufacturing while in Germany, the sector grew for an eighth consecutive month. Moody’s Investors Service upgraded its economic outlook for Germany citing the cooperation between the euro area countries as the reason why there’s been growth. The Swiss Franc advanced to almost 16-month highs versus the greenback, and reached the highest price in over a year against the euro due to the demand for safe havens brought on by tensions between Russia and the Ukraine. The British pound gained against the U.S. monetary unit on strong Manufacturing data, but weakened later on as the crisis continued to weigh on risk appetite in the market.

The yen rose against the U.S. dollar as the crisis in the Ukraine remained in the spotlight on Monday after Russia moved military troops into Crimea over the weekend. This intensified worries of a conflict with the Ukrainian new government. The yen climbed against most of its counterparts after U.S. Secretary of State John Kerry announced his plans to travel to Kiev, and mentioned that economic sanctions may be imposed against Russia. Meanwhile, foreign Ministers of the european Union have called for emergency meetings over the crisis. The yen was also bolstered as the gauge which measures foreign exchange price fluctuations surged to the highest level in three weeks.

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Lastly, in the South Pacific, the Australian dollar traded little changed against the greenback despite solid economic reports out of the Aussie nation which showed that sales of New Homes rose and ads for Jobs went up as well. Furthermore, Company Profits climbed in the fourth quarter of 2013. The Aussie had gained, but its advanced was capped by news from China which indicated a slump in Manufacturing. New Zealand’s dollar plummeted versus the greenback on signs that the situation between Russia and the Ukraine has escalated and could result in war. The Kiwi was also affected by the disappointing Chinese macroeconomics.

EUR/USD: ECB May Not Cut Rates

The EUR/USD plunged on Monday as risk aversion reigned in the market given the ongoing crisis between Russia and the Ukraine. In the E.U., economists predict that the european Central Bank may not trim the costs of borrowing money. With metrics on growth and inflation surpassing forecasts, the surveys have shown that speculator believe the central bank could leave the key cash rate at 0.25 percent when it meets this week. Meanwhile data out on Monday showed that the E.U.’s Manufacturing Purchasing Manager’s Index fell to 53.2 last month, after posting at 54.0 in January. This was the first decline in five months. Other news indicated at French Manufacturing slumped in February, while Germany came in ahead, divulging that activities in the manufacturing area surged yet another month. Investors will keep an eye on what the bank does on March 6, and on what the bank’s President, Mario Draghi will say when he delivers the policy statement. Analysts predict that Mr. Draghi could send ripples through the market.

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GBP/USD: Pound Remains Down

The GBP/USD rallied after the U.K. delivered positive reports on Manufacturing, but it plunged later in the day as the tensions between Russia and the Ukraine continued to bolster demand for safer assets. On the data front, Markit announced that the Manufacturing Purchasing Manager’s Index rose from 56.6 to 56.9 in February, and the hike helped create more jobs. Other releases indicated that the number of Mortgage Loans approved climbed from 72,793 in the first month of the year to 76,947 in February. Economists say that factory production improved in the past month, signaling that the recovery is here to stay.

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USD/JPY: Fear Fuel Yen’s Value

The USD/JPY fell as tensions rose in the Crimea region of the Ukraine. Sentiment in the market was also hit by news that the Chinese Manufacturing sector weakened in the month of February. The Purchasing Manager’s Index read at 48.5 for February, after coming in at 49.5 in January, denoting that it’s still contracting. In Japan, reports indicated that Industrial Production gained the most since the beginning of 2011, showing that the Japanese economy is gathering momentum despite the looming sales tax hike. Output climbed 4 percent according to the reports issued by the Minister of Economy. Furthermore, Consumer Prices jumped 1.3 percent from the previous year. The percentage did not include fresh food prices.

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AUD/USD: Companies Post Gains

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The AUD/USD advanced, but dipped later in the day as demand for risk assets declined in the currency exchange. The AUD/USD gave up prior gains as China released mixed fundamentals which although they met forecasts, they still disappointed. In the land from down under, sales of New Homes rose in January after sustaining a decline in December. The Housing Industry Association stated that sales climbed 0.5 percent after posting a 0.4 percent drop. Separate announcements showed that Advertisements for Employment surged 5.1 percent in February, and Company Gains climbed 1.7 percent in the last three months of 2013, slightly less than anticipated. Glenn Stevens, the governor of the Reserve Bank will face the Economics Committee of the House of Representatives, and will issue his post-policy meeting statement. Meanwhile, today, the RBA will issue its decision on the benchmark interest rate.

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Daily Outlook: Today’s economic calendar shows that the euro region will report on PPI. The U.K. will post Construction PMI. The U.S. will release the Redbook. Australia will announce GDP. And China will publish HSBC Services PMI.

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