Ukraine headlines have continued to dominate during the past 24 hours.

Ukraine headlines have continued to dominate during the past 24 hours. Talks between Russian and Ukraine officials made no headway and there were concerns that the scale of fighting would intensify in the short term as Russia looked to cut off Kyiv and force the national government to surrender.

There were also increased fears over the threat of much higher civilian casualties. Latest reports indicate that the Russian military convoy heading for Kyiv is 40 miles long.

Switzerland announced that it would engage in sanctions on Russia and would impose the same restrictions on the banks as the EU which would tighten financial pressure.

There were further uncertainties over the impact of blocking Russian access to SWFT with concerns that global supply-chain difficulties would intensify. There were also stresses in funding markets with increased dollar demand.

Market uncertainty inevitably remained intense with traders assessing the latest military developments and the impact of financial sanctions. There will be an important impact on the global economy and capital flows with some potential dollar support.

Overall volatility across asset classes eased slightly with no sustained selling of risk assets at this stage and global equities posted net gains on Tuesday, but tensions remained very high.  Oil prices held a firm tone with overall consolidation in precious metals.

There was a further limited shift in interest-rate futures during the day. Money markets priced in 30 basis points of ECB tightening by the end of 2022 compared with around 35 basis points at the end of last week. The first move to raise rates is also now seen in September compared with June previously.

The potential for a 50 basis-point increase in the Fed funds rate at the March meeting also declined to around 10% from 20% last week.

Atlanta Fed President Bostic stated that he favoured a 25 basis-point increase this month, but also stated that he would have to look at a 50 basis-point increase if the data persists at elevated levels.

The Reserve Bank of Australia (RBA) held interest rates at 0.1%, in line with expectations. There was no significant change in rhetoric with the bank reiterating that interest rates would not be increased until inflation is sustainably in the 2-3% range.

The bank also stated that the pick-up in wages growth is expected to remain gradual while the Ukraine war is a major new source of uncertainty.

The US goods trade balance widened to a record $107.6bn for January from $100.5bn the previous month and compared with consensus forecasts of $100.0bn. There was a significant dip in exports for the month while imports increased by a similar margin. The widening deficit will have a negative impact on first-quarter GDP growth.

China’s PMI manufacturing index edged higher to 50.2 for February from 50.1, but the no-manufacturing index secured a slightly stronger increase to 51.6 from 51.5 previously while the Caixin manufacturing index strengthened to 50.4 from 49.1 with the data overall providing an element of relief.

Risk conditions improved to some extent during Monday, although caution inevitably prevailed given fears over Ukraine developments. US bond yields moved significantly lower which limited potential dollar support.

The yen and Swiss franc maintained a firm underlying tone. USD/JPY dipped below the 115.00 level and struggled to recover.

The Euro failed to hold intra-day gains amid underlying reservations over the Euro-zone economy. EUR/CHF dipped to fresh 6-year lows below 1.0300. EUR/USD settled just above 1.1200 on Tuesday

Sterling was held in tight ranges with some relief over equity-market trends. GBP/USD gained to around 1.3430 on Tuesday and GBP/EUR close to 1.1960.

Commodity currencies posted net gains amid strong commodity prices. Reaction to the Reserve Bank of Australia decision was limited with net AUD/USD gains to 0.7285.

USD/CAD retreated to near 1.2650 ahead of Wednesday’s Bank of Canada policy decision.

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