Currency Investors Fly to Safety Amid Ukrainian Conflict

Reuters Article

The dollar and yen gained on Monday as investors sought the safety of these currencies as Russia’s military intervention in Ukraine’s Crimean peninsula fanned geopolitical tensions.

“Investors turned to classic safe havens amid heightened tensions in Ukraine,” said Joe Manimbo, senior market analyst, at Western Union Business Solutions in Washington.

The United States threatened to isolate Russia economically after Putin’s action provoked what Britain’s foreign minister called “the biggest crisis in Europe in the twenty-first century”.

My opinion: With respect to the US economy, a stronger dollar will put more downward pressure on the inflation rate. The Fed does not want to see any more deflationary pressure and I would expect this may give the Fed a chance to postpone the taper for a brief period and make more economic gains against the Chinese economy as they continue to wane.

To go slightly off topic here, I don’t imagine that there is any threat of war between the US and Russia as no two nuclear powers have ever faced off in history. The consequences are just too large. War between the Ukraine and Russia seems imminent but that appears to be something the US is ready to deal with as we have been giving Ukrainian rebels financial aid.

If I were to venture a guess as to what has been motivating this conflict, it would be that western countries have been concerned about Russia’s recent power grab in eastern Europe and the Middle East. So, in order to squelch the possibility of a more powerful Russian presence, western countries have enabled any push-back on Russia’s gains. Now that there seems to be a reason for sanctions, western states are taking advantage of the opportunity.

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