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  • Writer's pictureanalysiswatch

Title: Dollar Soars; Sanctions Escalation Prompts Sade Haven Demand

Feb 28, 2022 03:02AM ET

By: AnalysisWatch

The U.S. dollar rose in early European trading Monday, while the ruble fell to a record low, as tougher sanctions by the West against Russia for its invasion of Ukraine boosted demand for the world's reserve currency.

At 3:05 AM ET, the dollar index, which tracks the greenback against a basket of six other currencies, was trading 0.5% higher at 97.115.

Western powers increased pressure on Russian President Vladimir Putin by preventing several major Russian banks from using the SWIFT global payment system over the weekend.

The Swiss bank added that this could push central banks, particularly the Federal Reserve, to increase liquidity to compensate for payment defaults.

In addition, the EU and the US have announced measures that have frozen more than half of the Russian central bank's foreign reserves.

This leads traders to seek the dollar, the world's reserve currency, as the main safe haven and most liquid asset.

On the other hand, the ruble fell to a record low against the dollar on Monday, prompting Russia's central bank to raise its key interest rate to 20% from 9.5% and prompting companies to sell foreign currency to protect the currency.

At 2:55 AM ET, USD/RUB rose more than 11% to 92.7400, after earlier rising to 117.8170, a new all-time high.

In the face of tightening sanctions, the Russian economy is expected to contract by 20% in the second quarter and by about 3.5% for the full year.

Given the extreme volatility in the market, investors will watch Fed Chairman Jerome Powell's testimony on the economy and monetary policy before the House Financial Services Committee on Wednesday and again before the Senate Banking Committee on Thursday this week.

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