In worrying times like this, it is important for us to point out that we completely acknowledge the wider implications of international conflict. Our principle duty as a company is to ensure that our clients are aware of all of the factors that affect currency exchange rates, which sadly sometimes includes war. Our thoughts are with everyone who is being affected by this escalating situation, and our currency updates do not intend to diminish, ignore or undermine the true impacts of this conflict.

The pound plummeted amid dampened market mood and demand for the safe-haven US dollar, following an escalation in the Ukraine war.

The increased appetite for safe-haven assets like the US dollar, follows the escalation of the Russia-Ukraine conflict and the possibility of the US banning oil imports from Russia. On Monday, oil futures reacted to the headlines, with Brent oil crude surging above $139 a barrel, while US Crude oil rose to near $130. In the meantime, the US dollar dominated markets and gained against most G8 currencies. Other safe-haven currencies like the Swiss franc and the Japanese yen fell.

Oil and gas import ban

During the weekend, the US Secretary of State Blinken announced that the US and allies were in discussions relating to a Russian oil import ban, but later Bloomberg reported that the “US is weighing acting without allies on a ban of Russian oil imports, although the timing and scope of any ban is still fluid.”

At a Downing Street press conference on Monday, the UK Prime Minister Boris Johnson said: “I don’t think Tony Blinken was wrong in the sense that we are all together now moving very, very fast and seeing that something that, perhaps three or four weeks ago, we would never have considered is now very much on the table. We have to consider how we can all move away as fast as possible from dependence, reliance, on Russian hydrocarbons, Russian oil and gas. Everybody is doing that, everybody is on the same journey. Some countries will find it faster and easier than others, that’s all. But we’re going to do it together and we are going to work together on making sure that we all have the substitutes and the supplies that we need.”

Dutch prime minister Mark Rutte, speaking at the same conference, said banning Russian oil and gas would be a “step-by-step process,” “diligent and not overnight.” He said: “We have to make sure to deleverage our dependency on Russian gas, on Russian oil, while acknowledging at the moment that the dependency is, to a certain extent, still there.” It will have “enormous consequences” if we stop doing business with Russia and it would “undermine supply chains the world over, particularly in Europe. It would also have an impact on Ukraine itself.”

Senior US officials have reportedly travelled to Venezuela secretly in the weekend to unfreeze hostile relations with a top oil exporter who is also Vladimir Putin’s top ally in Latin America. The exporter’s re-entry into the US energy markets could alleviate supply issues following a possible oil embargo on Russia. The outcome of the talks with Nicolas Maduro’s government is not yet clear and the visit follows months of communications by American lobbyists, Norwegian negotiators and oil executives who have tried to encourage Biden to reach out to Maduro.

On Monday, the Ukrainian president, Volodymyr Zelensky, asked the international community to boycott Russian exports and supply to Russia. He said: “If they do not want to comply with civilised rules, they should not receive goods and services from civilisation either. Let the war feed them.” He also requested from western allies to send aircraft to Ukraine for his air force. To those who commit atrocities against Ukraine's civilians he said there will be no forgiveness and accused invading Russian troops of deliberate murder. As he warned, "There will be no quiet place on Earth for you. Except for the grave," the Ukrainian president said.

Euro shock

Currency markets continued to be volatile with the currencies of energy exporting countries remaining strong while those of net importers being hit. The war in Ukraine has pushed the euro lower and economists say the rising cost of oil and gas will also hurt the Eurozone's economy given its significant dependence on Russia's energy industry. The European Union’s “growing gas crisis” has led her to push for energy savings and to renewable power.

Gas and electricity prices are expected to remain high and volatile as the situation has deteriorated and the EU is trying to grapple with its gas dependency after Russia’s invasion of Ukraine. The EU imports 40% of its gas from Russia, for more than 15 years. According to reports, EU competition authorities are investigating the Russian state energy company Gazprom following suspicions for its behaviour as its EU storage facilities are only 16% full, compared with 44% for non-Gazprom storage, suggesting the Kremlin is using gas as a geopolitical tool.

Concerns of a Eurozone economic slowdown could push the European Central Bank to reconsider the rate at which it intends to normalise monetary policy, which could weigh on the Euro. The central bank will meet on Thursday.