The dollar was unable to hold intra-day highs and closed mixed ahead of the Fed statement.
Markets have been monitoring the Ukraine situation closely over the past few weeks, but concerns spiked higher late last week. After the European close on Friday, there was a warning from the US Administration that Russia was set to invade Ukraine within days while several countries recommend that their citizens should leave Ukraine.
There was a rapid slide in risk appetite following the US warning that Russia would make a move this week. The timing of the comments near the Friday close was also important in amplifying the potential impact across asset classes as fear dominated.
Nervous trading continued on Monday, although with a glimmer of hopes surrounding diplomatic efforts leading to some stabilisation in equity markets.
Wall Street equities dipped sharply into the close with the S&P 500 index declining 1.9%. Ukraine fears also triggered strong support for defensive assets with notable demand for the yen, Swiss franc and gold which all posted sharp gains on the day.
The yen was the main beneficiary as fear dominated with USD/JPY lows close to 115.00.
The Euro also lost ground amid regional fears while the dollar secured an element of defensive demand with buying of US Treasuries.
Oil prices spiked higher, especially with further underlying support from expectation of tight global supplies.
Ukraine fears increased concerns over supply disruptions and international benchmarks spiked higher to fresh 7-year highs.
WTI surged to 7-year highs above $94.50 p/b and held close to this level on Monday with Brent also spiking to 7-year highs around $96.0 p/b.
The University of Michigan consumer confidence index dipped to 61.7 for February from 67.2 the previous month and well below consensus forecasts of 67.5. The current conditions component declined to 68.5 from 72.0 with a significant drop in the expectations index.
Inflation expectations remained a significant focus within the data given the potential impact on Fed policy. The 1-year inflation expectations index edged higher to 5.0% from 4.9% with the 5-year figure unchanged at 3.1%.
In comments over the weekend, San Francisco Fed President Daly stated that being too aggressive with rate hikes could be destabilising.
She added that inflation was too high and she is ready to raise rates in March, but that a balanced approach to rate increases is key. The rhetoric nudged market expectations towards not expecting a 0.50% rate hike at the March meeting.
In this context, the comments had some impact in moderating US yields with the 10-year yield back below 2.00%, although risk conditions had a larger immediate impact.
Following the focus on US inflation the previous day, unease surrounding the Ukraine situation dominated late on Friday.
As equities dipped sharply, there was increased demand for defensive currencies.
The yen posted strong gains with USD/JPY sliding to lows near 115.00. The dollar secured an element of defensive support while the Euro dipped sharply lower. In this environment, EUR/USD dipped to lows near 1.1330. There was a tentative correction on Monday with USD/JPY around 115.40 although EUR/USD was held below 1.1350.
Sterling was resilient despite the dip in risk appetite with GBP/USD just below 1.3550. EUR/GBP retreated to 10-day lows around 0.8355 amid Euro losses before correcting slightly. EUR/CHF also retreated sharply to below 1.0500.
Weaker risk appetite hampered commodity currencies with AUD/USD around 0.7120. The Canadian dollar drew some support from higher oil prices with USD/CAD around 1.2730.
The Swedish krona was unable to regain ground with EUR/SEK at fresh 16-month highs near 10.60.
|07:30||CHF PPI (M/M)(JAN)||-0.10%|
|07:30||CHF PPI (Y/Y)(JAN)||5.10%|
|23:50||JPY GDP (Q/Q)||-0.90%|
|23:50||JPY GDP Annualized||-3.60%|