The safe-haven yen hit a virtually three-week high and therefore the monetary unit and alternative risk currencies fell on Tues as Russia ordered troops into breakaway components of Japanese Ukraine and therefore the region was on the brink of war.
The yen edged up about 0.2% to 114.50 against the dollar in early Asia and the euro slumped about 0.1% to a one-week low of $1.1297. The Swiss franc, another haven, hit a one-month high overnight.
Russian President Vladimir Putin recognized the two breakaway territories in eastern Ukraine as independent on Monday and ordered the Russian army to launch what Moscow called a peacekeeping operation into the region.
It was not immediately clear whether the move was a prelude to the invasion of Ukraine that the United States and its allies had been warning about for weeks, but the West has begun to respond by setting up sanctions.
The Russian ruble slumped more than 3% against the dollar on Monday and extended its losses on Tuesday, edging around 0.3% lower to a 15-month low of 80.3930 against the dollar.
Australian Dollar Last Down Around 0.1%
The risk-sensitive Australian and New Zealand dollars traded under pressure but remained within recent ranges as analysts said commodity prices and markets had positioned the Australian dollar very short to limit losses.
The sharp sell-off in Russian assets is a vivid reminder that tensions remain very high and risk sentiment is brewing in equity, credit, and bond markets, Westpac analysts said in a note.
However, the commodity story remains very supportive, and we are in the middle of a miner’s dividend season which means that we are likely to take price action lower around $0.72.
The euro's strength failed, and the dollar received a safe-haven boost Monday after the Kremlin said there were no concrete plans for a summit on Ukraine between the Russian and US presidents.
Reports over the weekend that Vladimir Putin and Joe Biden had agreed in principle to discuss the possibility of finding a way out of Europe's biggest military crisis in decades have prompted investors to cautiously buy stocks and the euro and pull capital away from safe-haven.
But the latest news, along with reports of border clashes, prompted investors to take cover. Tensions are running high, said Kenneth Broux, FX strategist at Societe Generale (OTC: SCGLY).
Euro Moves Weaker Due to Ukraine Conflict
Against the safe-haven Swiss franc, the euro slumped half a percent to a three-week low of 1.0384 francs per euro. Against the greenback, the euro, which was up 0.6% at one stage during early London trade, was slowly shedding those gains and was up 0.1% at $1.1336.
Russia's FSB security service said a shell fired from Ukrainian territory had destroyed a border guard post, while Ukrainian authorities warned that hackers were preparing to launch a major attack on government institutions, banks, and the defense sector on Tuesday.
Optimism has disappeared, head of G10 FX strategy at CIBC, pointing to new headlines showing that the UK believes Russia may still be plotting an invasion. During the same time, the dollar index recovered most of its losses and was down just 0.13% against major rivals.
Echoing mood swings over the prospect of de-escalation, European stock markets turned sharply negative after opening in positive territory, with a gauge of European stock market volatility at their highest level since November 2020.
In contrast, safe-have currencies that benefited from tensions driven by Russia's military build-up on Ukraine's borders are back in favor. The Swiss franc was up 0.54% at $0.9164 versus the broadly firm US dollar.
While the outcome of negotiations to find a peaceful way out of the Ukraine crisis remains uncertain, more volatility is expected in the future. A measure of currency market volatility held near the highest level since February 2021.
