The US dollar has risen to its highest level since 2020 following Russia’s invasion of Ukraine which has globally affected the global economy and financial markets.
The US dollar is considered by investors to be the safest currency and the backbone of the economy, with the current situation Investors, decided they didn’t want to hold euros anymore given Europe’s proximity to the conflict. They dumped the bloc’s common currency and bought dollars instead.
“European markets are simply not attractive at this moment simply because of their geographical exposure to Ukraine and Russia,” NG strategist Francesco Pesole said.
The euro tumbled below $1.10 for the first time in almost two years and hit a fresh seven-year low against the safe-haven Swiss franc as Russian forces seized the largest nuclear power plant in Europe and fighting raged elsewhere in Ukraine.
Natural gas prices in Europe hit record highs last week because of concerns about what will happen to energy exports from Russia. The United States, which is a major producer of energy itself, is getting slammed by higher costs, but to a lesser degree.
Energy markets have been rocked in recent days over-supply fears triggered by the Russian invasion of Ukraine. Brent crude, the global oil benchmark, spiked to above $139 a barrel, before easing to around $130.
The US economy from recent data released its healthy Plus, the dollar got a boost after Federal Reserve Chair Jerome Powell said that the central bank aims to start raising interest rates later this month, even though the situation in Ukraine has clouded the outlook.
“Markets and central banks want to hold the dollar because it’s a very liquid currency. It’s highly tradable,” Pesole said. “It’s backed by a very strong and solid economy.”
A stronger dollar can hurt profits for companies that earn money abroad, but a larger concern is how the dollar’s ascent will affect emerging economies, which often have to service their debts in dollars.