FX Update: Euro and its periphery continue to suffer worst of Ukraine impact FX Update: Euro and its periphery continue to suffer worst of Ukraine impact FX Update: Euro and its periphery continue to suffer worst of Ukraine impact

FX Update: Euro and its periphery continue to suffer worst of Ukraine impact

Forex 5 minutes to read
John Hardy

Head of FX Strategy

Summary:  The euro continues to weaken on the ongoing fallout from the war in Ukraine as European equity markets are capitulating today. Peripheral European FX, from the Swedish krona to the CEE currencies, continues to trade even weaker, with even a larger than expected rate hike unable to support the Hungarian forint. And this is Friday, with every weekend seeming a long one.

FX Trading focus: Euro and its periphery continue to get worst of it from war in Ukraine.

European equity markets are capitulating today on the weight of the implications of the war in Ukraine and its ongoing fallout, and the euro itself is capitulation as well, with EURUSD trading sub-1.1000 and EURCHF well on its way to parity, while EURJPY. As I note below, EURAUD has been a theme trade on the fallout from Russia’s assault on Ukraine as Australia is strong in the very commodities that are most heavily impacted by the conflict: it is a top six wheat exporter and the world’s largest exporter of LNG.

An extra twist for CEE from the war in Ukraine is flagged by a Bloomberg article that discusses Ukrainian workers “downing tools and ditching trucks” to head back to Ukraine to fight the Russian assault, with significant implications for these economies, where wage growth has continued to outstrip even the high recent inflation levels. A real growth recession is coming there and CEE currencies are under considerable pressure. Before the pandemic, between 2.2 and 2.7 million Ukrainian migrant workers were working abroad – many of them in Poland. Yesterday, the Hungarian central bank hiked the deposit rate 75 basis points to 5.35% and the market hardly blinked an eye.  The National Bank of Poland bank meets next week and is expected to hike the rate 50 basis points to 3.25%, but will need to do more to slow the zloty’s slide if the war impact continues to deepen. EURCZK is possibly the first place to look to take risk in fading this move, as Czech has gigantic foreign reserves it was already out announcing this morning that it had mobilized to stabilize the koruna and EURCZK shorts offer solid 500 basis points of carry that will likely increase further with further Czech central bank policy tightening.

Sterling has been firmer in part on the very weak euro, but possibly also on the idea that security concerns for EU countries will motivate EU countries and fellow NATO members to maintain a strong defensive front against Russia, as the UK has the strongest military presence in Europe. No incentive, in other words, to draw up new battle lines, etc. on customs issues linked to Norther Ireland, etc.

The US February ISM Services Index release yesterday dropped sharply to 56.5 versus 61.1 expected and 59.9 in January. The fall-off from the record levels registered a few months ago is impressive, but as this is a “diffusion” index, it is impossible for conditions to maintain a strong pace of relative improvement over time. 56.5 is still a solid number, even if the deceleration is notable. The employment sub-index fell to 48.5 versus 52.3 in January and was the worst since August of 2020. As an acceleration in gas prices and food prices has been set in motion only starting in the very last days of February, the impact of rising inflation on confidence and economic activity will deserve close scrutiny for the March data cycle – higher energy prices have preceded every recession in modern US economic history. Wheat prices are particularly scary, as we are near record levels and Chicago wheat futures have been pinned at limit up overnight – food demand is not particularly elastic.

Today is US Nonfarm payrolls data, with possibly more focus on the Average Hourly Earnings as an input for the persistence of inflation. Next week’s US February CPI print is expected at 7.9% and that is before the latest acceleration in key commodity inputs.

The EURAUD pair has been about as direct an expression of the fallout from the war in Ukraine as any other G10 pairing, if one is not thinking along the usual “risk sentiment” fault-line, as with EURCHF, etc. . As noted above, Australia’s impressive portfolio of commodities exports include those most under pressure directly from the war, but also from the sanctions on Russia, as metals prices have also shot higher in recent sessions. Of course, this also builds energy for an incredible reversal in the hopeful event we see a change of the situation on the ground in Ukraine.

Source: Saxo Group

Table: FX Board of G10 and CNH trend evolution and strength.
Trends continue to deepen, with the euro and the Swedish krona getting the worst of it among G10 currencies, while JPY is edging out the US dollar today as a safe haven on falling long treasury yields. The Aussie is trading as a commodity super-power.

Source: Bloomberg and Saxo Group

Table: FX Board Trend Scoreboard for individual pairs.
Little new in the individual pairs of late as trends are mostly deepening – look at AUDSEK registering an incredible 14.1 reading. Interesting to watch a pair like USDCAD which struggles between oil prices supporting CAD while risk sentiment is normally more CAD-negative, which is the side winning out today – at some level of broad deleveraging, I would expect this to hit AUD and NZD as well.

Source: Bloomberg and Saxo Group

Today’s Economic Calendar Highlights (all times GMT)

  • 1330 – US Feb. Change in Nonfarm payrolls
  • 1330 – US Feb. Unemployment Rate
  • 1330 – US Feb. Average Hourly Earnings
  • 1500 – Canada Feb. Ivey PMI

Quarterly Outlook 2024 Q3

Sandcastle economics

01 / 05

  • Macro: Sandcastle economics

    Invest wisely in Q3 2024: Discover SaxoStrats' insights on navigating a stable yet fragile global economy.

    Read article
  • Bonds: What to do until inflation stabilises

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain inflation and evolving monetary policies.

    Read article
  • Equities: Are we blowing bubbles again

    Explore key trends and opportunities in European equities and electrification theme as market dynamics echo 2021's rally.

    Read article
  • FX: Risk-on currencies to surge against havens

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperform in Q3 2024.

    Read article
  • Commodities: Energy and grains in focus as metals pause

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities in Q3 2024.

    Read article


The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-gb/legal/disclaimer/saxo-disclaimer)

40 Bank Street, 26th floor
E14 5DA
United Kingdom

Contact Saxo

Select region

United Kingdom
United Kingdom

Trade Responsibly
All trading carries risk. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more
Additional Key Information Documents are available in our trading platform.

Saxo is a registered Trading Name of Saxo Capital Markets UK Ltd (‘Saxo’). Saxo is authorised and regulated by the Financial Conduct Authority, Firm Reference Number 551422. Registered address: 26th Floor, 40 Bank Street, Canary Wharf, London E14 5DA. Company number 7413871. Registered in England & Wales.

This website, including the information and materials contained in it, are not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in the United States, Belgium or any other jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation.

It is important that you understand that with investments, your capital is at risk. Past performance is not a guide to future performance. It is your responsibility to ensure that you make an informed decision about whether or not to invest with us. If you are still unsure if investing is right for you, please seek independent advice. Saxo assumes no liability for any loss sustained from trading in accordance with a recommendation.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc. Android is a trademark of Google Inc.

©   since 1992