Chuck Mikołajczak
NEW YORK (Reuters) – Safe haven currencies saw a surge in demand on Tuesday, with the U.S. dollar, Swiss franc and yen attracting buyers after Russia updated its nuclear doctrine in response to an escalating conflict with Ukraine.
Ukraine used U.S. ATACMS missiles to strike Russian territory for the first time, Moscow said, in an attack that Russia sees as a significant boost in hostilities on the 1,000th day of the war.
Putin approved the change days after two U.S. officials and a source familiar with the decision said on Sunday that U.S. President Joe Biden’s administration would allow Ukraine to employ U.S.-made weapons to strike deep into Russia.
The dollar rate, which measures the greenback against a basket of currencies, rose 0.1% to 106.33 after hitting a high of 106.63 during the session, while the euro fell 0.25% to $1.0573.
However, the initial moves faltered somewhat after Russian Foreign Minister Sergei Lavrov said the country would “do everything possible” to avoid the outbreak of nuclear war, while expressing approval of Germany’s decision on Monday not to supply long-range missiles to Ukraine, calling it “responsible position.”
Moreover, the United States said it saw no reason to adjust its nuclear stance in response.
“After Lavrov’s comments, we are seeing a reversal of the situation, so the United States will not react to this change in Russian nuclear doctrine, which also played a role in calming the mood here,” said Erik Bregar, director of FX & valuable metals risk management at Silver Gold Bull in Toronto .
“The nice three-week wave of over-leveraged long positions and geopolitical risks haven’t gone away, the world is still crazy and dangerous.”
The Japanese yen strengthened 0.43% against the dollar to 154 per dollar and rose 0.48% to 163.07 against the euro after strengthening to a six-week high of 161.50.
Since the beginning of October, the dollar has strengthened as much as 9% against the Japanese currency to 156.74, surpassing the 156 level for the first time since July and raising the possibility of Japanese authorities again stepping in to shore up the currency.
Against the Swiss franc, the dollar weakened by 0.11% to 0.882. The Russian ruble weakened by 0.83% against the dollar to 100.571 per dollar.
The dollar index is gaining on rising expectations that the Federal Reserve may tardy its rate cut and fears that the policies of future US President Donald Trump may again trigger inflation.
Expectations for the path of interest rate cuts have been tempered, albeit volatile, in recent weeks, with markets now pricing in a 58.7% chance of a 25 basis point cut at the Fed’s December meeting, down from 76.8% a month ago, according to the company’s FedWatch tool CME.
The European Central Bank is also expected to continue cutting interest rates to boost economic growth in the region.
In the latest comments from ECB policymakers, Fabio Panetta said on Tuesday that the central bank should cut interest rates so that they no longer limit economic growth, but even stimulate it, and provide further guidance now that post-pandemic shocks are subsiding and inflation is low. normalization.
Panetta’s comments came after two top ECB policymakers signaled on Monday that they were more concerned about the damage up-to-date U.S. trade tariffs would do to economic growth than any effect on inflation.
The pound sterling weakened 0.28% to $1.264.
