Euro slides as war in Ukraine stokes fears of inflationary shock

The euro tumbled to a fresh 22-month low on the dollar while commodity currencies were swept to multi-month peaks as the war in Ukraine sent oil prices spiking to multi-year highs and stoked fears of a stagflationary shock that could hammer Europe

The euro fell as much as 0.61% on the dollar and hit $1.0859. It is down almost 4% since Russia began what it calls a “special military operation” in Ukraine and is not far from testing its 2020 trough of $1.0636

It also briefly fell below one Swiss franc for the first time since the Swiss quit their euro peg in 2015, hitting 0.9970 before jumping to 1.0063

Oil futures, which surged more than 20% last week, briefly leapt to highs not seen since 2008 as the United States and Europe mulled bans on Russian imports. Wheat hit a 14-year high

“The euro is being picked on,” said Sean Callow at Westpac in Sydney. ”(The war) is on Europe’s doorstep,” he said

The euro briefly dropped Monday to a 15-month low of 124.39 yen and touched its lowest since mid-2016 on the pound at 82.01 pence. Against the Aussie, the euro has lost more than 10% over about a month. Euro/dollar volatility gauges are at their highest since March 2020

Fighting in Ukraine intensified over the weekend and attempts at a ceasefire to allow civilians to evacuate from the besieged city of Mariupol seem to have so far failed

The conflict and harsh western sanctions on Russia have sent Russian assets tumbling and prices of Russian exports such as precious metals, oil and gas soaring at a time when the global economy was already grappling with inflationary pressures

“This is very bad news for global growth – particularly Europe, given their dependence on gas from Russia,” ANZ analysts said in a note

Sterling has also been weighted by gloom over Europe’s outlook and fell to a two-month low of $1.3111. The South Korean won was pummeled to a 21-month trough and traders said South Korea’s foreign exchange authority was buying to try and limit the decline

Over the weekend China announced a slower economic growth target of around 5.5% this year. Last year China’s GDP grew 8.1%, beating the government’s target of more than 6%. The yuan edged lower to 6.319 per dollar on Monday

Among gainers, the Australian dollar briefly cracked January’s peak to scale a four-month high of $0.7440. The New Zealand dollar also cleared a January top to reach $0.6926

The U.S. dollar rose against the swiss franc and the yen, last up about 1.10% on the franc at 0.9266 and about 0.51% higher on the yen at 115.37

The U.S. dollar index hit a 22-month high of more than 99.00 and was last up 0.51% at 99.15. Last week’s data showed U.S. unemployment falling to a two-year low of just 3.8%, though inflation data this week is expected to show annual growth at a stratospheric 7.9%

The European Central Bank, which meets on Thursday, faces a complicated picture as inflation and growth pressures bear down and economists reckon it will wait until late in the year to move rates higher