- Biden and Putin agree to hold talks as Russia and Ukraine on the brink of war
- Gold’s advance halted at $1,900/oz as risk tone recovers
- Euro is revived, strong PMIs help too; dollar and yen pull back
Ukraine headlines remain in driving seat
Simmering tensions over Ukraine continued to keep investors on edge at the start of the new trading week even as hopes of a peaceful resolution for the crisis were kept alive by a last-ditch effort by France. The French President Emmanuel Macron has reportedly persuaded the US and Russian leaders to hold a summit to prevent the breakout of an all-out-war in Ukraine.
However, while both US President Joe Biden and Russian President Vladimir Putin have “agreed in principle”, the Kremlin is downplaying the prospect of an imminent meeting, with Putin’s spokesman saying, “it’s premature to talk about specific plans for a summit”.
The latest developments suggest the markets’ rollercoaster ride is far from being over just yet as the Ukraine crisis has erupted at a time when traders are also grappling with tightening monetary policy around the world amid soaring inflation.
Some market participants have already started to question whether central banks would be able to proceed with their plans to remove stimulus should Russia invade Ukraine. Though, in reality, policymakers may have no choice but to slam on the brakes even harder if an invasion triggers Russian sanctions, pushing energy prices even higher.
Easing tensions thwart gold’s bid to crack $1,900
With the threat of Russia launching the biggest war in Europe since World War II hanging over the markets, gold has been on a roll this month, briefly hitting the $1,900/oz mark earlier today for the first time since June 2021. The geopolitical turmoil has positioned gold as one of the best performing assets in the year-to-date, surpassed only by oil among the major commodities.
The precious metal is currently trading slightly below the $1,900 level following the news that there may yet be a diplomatic way out of the Ukraine standoff. However, the fact that the pullbacks in bullion prices on positive headlines have not been as great as the gains from fresh escalations can only imply that investors are becoming increasingly worried about the situation.
Oil prices have also barely receded whenever nerves have been calmed by renewed dialogue between Western, Russian and Ukrainian leaders. Growing signs that a deal with Iran on its nuclear programme is getting close has not had much impact in hampering the rally.
Upbeat PMIs add to improved appetite in FX markets
Meanwhile, in the currency markets, the euro was enjoying a strong bump up from the slight easing in Ukraine frictions. The single currency was further lifted from upbeat flash PMI numbers out of the Eurozone today that showed growth perked up more sharply than expected in February, hitting the fastest in eight months.
As long as nothing jeopardises the euro area’s recovery and inflationary pressures stay heated, the ECB will have no excuse but to end its quantitative easing programme in Q2 or Q3, sooner than it is currently projecting.
The euro was last quoted around $1.1360, while the pound also got a boost from solid UK PMI data to stand 0.3% firmer.
The risk sensitive aussie and kiwi were the other big beneficiaries from today’s brightened mood, which weighed on the safe haven US dollar and Japanese yen, though not so much on the Swiss franc.
Dollar struggles as cautious Fed adds to woes
The dollar index has started the week on the back foot, skidding by about 0.25%. Aside from the fresh hopes of war being averted by a possible Biden-Putin summit, the dollar has been somewhat struggling lately from tempered expectations that the Federal Reserve will hike rates by 50 basis points in March.
Fed officials speaking over the weekend downplayed the need for an aggressive move in rates at the next meeting as the influential head of the New York Fed, John Williams, became the latest to argue against “a big step”.