Citi

European Open

Risk-off sentiments initially permeated through markets over headlines that U.S. Secretary of State Blinken believed Russia will invade Ukraine before the night is over. This risk-off sentiment only took a turn for the worse, as Russian President Putin made a surprise speech announcing that he has authorized a special military operation. Subsequently, Bloomberg reported that Russian forces attacked targets across Ukraine. US President Biden condemned the attack, and promised to unveil “further consequences” for Russia. Markets did not take this well, with UST yields and equities down heavily. Gold and oil prices surged, with Brent breaking past the $100 handle. DXY and JPY soared, while losses were led by SEK and NOK in G10. CEEMEA currencies took a big hit, and USDRUB traded 10% higher.

Elsewhere, we saw BoK keep rates unchanged, but raise their CPI forecast. However, the subsequent press conference was seen to be more dovish than markets expected. Overnight, we also saw reports of a potential coordinated release of oil reserves, which had oil markets slump slightly before geopolitical tensions hit.

Looking ahead, we note that US President Biden will reportedly speak at 17:00 GMT. In terms of planned events, we will see initial jobless and continuing claims at 13:30GMT, and a slew of Fedspeak, starting with Barkin at 14:00 GMT. CAD sees CFIB Business Barometer at 11:00 GMT, and GBP will see a flurry of central bank speakers at the Annual BEAR Conference which starts at 13:15 GMT. Over in EM, HUF sees One-Week Deposit Rate decision at 08:30 GMT, where Citi Economics expects a 30bps hike. HKD sees trade balance at 08:30 GMT. MXN sees inflation data at 12:00 GMT and central bank minutes at 15:00 GMT.

Credit Agricole

USD/JPY and Ukraine

The USD and JPY will likely be safe-haven currencies of choice during the Ukraine crisis. European safe-havens have a greater possibility of having their economies negatively impacted by Western sanctions against Russian, especially against Russia’s commodity exports. The USD will not get off unscathed against the JPY, however, as investors will reduce positioning and long USD/JPY has been a popular trade among investors given the divergence between the persistently dovish BoJ and the increasingly hawkish Fed. But the US-Japan rate differential will come under pressure as investors begin to doubt the willingness of the Fed to follow through on hawkish rhetoric amid the crisis in the Ukraine. While higher energy prices will add to inflation, they will also reduce the spending power of US consumers. So, USD/JPY’s fortunes will also depend on the Fed’s choices between inflation and growth.