EUR to weaken against USD and JPY amid Russia-Ukraine escalation – HSBC
25.02.2022, 08:21

EUR to weaken against USD and JPY amid Russia-Ukraine escalation – HSBC

Russia-Ukraine conflict has escalated further. Geopolitical tensions and global market uncertainties should see traditional safe-haven currencies strengthening. Yet, the risks of higher energy prices and spikes in other commodities prices may have different FX implications, economists at HSBC report.

Traditional safe-haven currencies should strengthen given the geopolitical stress

“Traditional safe-haven currencies – the USD, JPY and CHF – outperformed initially, and we expect this to continue if developments intensify. The USD should also benefit if there are concerns that higher energy prices cause a more acute slowing in the global economy.”

“Currencies that are more sensitive to heightened risk aversion (such as the AUD, NOK and NZD) should weaken. However, uncertainty is compounded by the impact of these events on energy prices and, hence, there should be some differentiation. In G10 FX, the CAD, NOK, and even the AUD may be able to withstand the pressure a little better than in a traditional risk-off move.”

“The escalation in Ukraine and related uncertainty about next steps could still see the EUR weaken versus the USD and JPY. The geographical proximity of the region and Europe’s reliance on commodity imports – particularly gas – are both sources of vulnerability.”

“The KRW tends to be more sensitive to heightened risk aversion and other currencies that are exposed to large net oil deficits, like the INR, could also weaken. We expect the RMB and SGD to be the most resilient in the region.”

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