Safe heaven currencies losing ground due to tensions between Russia and NATO
Safe heaven currencies have been on the back foot during early Friday trading, with the Swiss franc, Japanese yen and even the US dollar losing ground to other major currencies. Tensions between Russia and NATO countries, over a potential invasion of Ukraine, continue to influence the levels of risk appetite in the financial markets, and the latest news of a meeting between Russian and American officials being set for next week have been welcomed by investors, boosting risk-related assets rather than traditional safe-havens. Looking closer at the US dollar, the reasons for this morning’s weakness stretch beyond the re-pricing of geopolitical risk, following the release of initial jobless claims late on Thursday which showed an unexpected rise. As the chances of a 50bp interest rate hike by the Fed in March fade, there may be scope for further dollar weakness, especially if tensions in Eastern Europe start to ease.
Gold prices are edging down during early Friday trading but remaining close to the $1900 level reached on Thursday and at the start of today’s session. The precious metal rose above $1900 for the first time since June, on the back of a weakening dollar and concerns over developments in Eastern Europe, where the stand-off between Russia and the West is keeping investors on their toes, trying to second guess Moscow’s real intentions and whether or not an invasion of Ukraine is imminent. With US jobless claims unexpectedly rising, the chances of a 50bp interest rate hike in March diminished, generating weakness for the US dollar and supporting gold due to the inverted correlation between the two assets. However, news of a high level meeting between US and Russian officials next week has released some of the tension, improving risk appetite in the markets and weighing gold prices down. Caught between these two dynamics the price of the precious metal is likely to remain close to the current levels as the weekend approaches.
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