February 2022 Market Wrap

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The Dollar rallied higher, supported by prospects of higher interest rates in March alongside a fragile risk environment as Western countries ramped up their sanctions against Russia. Major Russian banks were excluded from the SWIFT program while assets of the Russian central bank, country’s leaders and wealthy individuals were frozen. International companies such as BP, Shell and HSCB also joined a growing list of companies to divest their joint ventures in Russia as sanctions tightened. We could see the Dollar hold on to its gains and benefit from its safe haven status in these unprecedented times.

Euro and Pound were badly hit by the geopolitical risks that continue to evolve between Russia and Ukraine. With prices rising at record rates in the Eurozone as growth rebounds in February, investors will be eyeing ECB for more clues on its monetary policy. ECB President Christine Lagarde recently mentioned that the central bank is ready to do whatever is necessary to maintain price stability and financial stability, a remarkable shift from its previous dovish stance. Meanwhile, BOE policy makers said that they will be starting to taper the central bank’s $875 billion quantitative easing programme.

Commodity currencies benefited from rising commodity prices amid fears that sanctions on Russia could disrupt supplies from one of the world’s largest producers of oil and gas. Crude oil prices topped $100 per barrel and data also showed that US crude stockpiles at Cushing, Oklahoma, continue to decline which could support a further price rally. Investors are also closely monitoring the Iran nuclear talks, which could see Iran supply over more than a million barrels per day to help ease a tight global market if a nuclear deal is reached. Gold prices rose near its eight months high as the inflation risks and escalating tensions buoyed demand for the safe haven asset.

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