Ukraine uncertainty ripples through currencies

Photo: Zongo

As Russia continues to stake its claim on Crimea, Ukraine's own currency, the hryvnia, has weakened significantly, dropping to 10.05 against the dollar today, reports Reuters. The country's political unrest began last month and has severely affected its economy, with the currency plunging 18 per cent since the beginning of 2014.

As that uncertainty continues, investors are now seeking safe havens to avoid any potential risks. 10-year bonds in the UK have now seen their biggest weekly rise in two months, while the pound has enjoyed a mixed performance over the past week.

The strength of the recovery has boosted speculation Governor Mark Carney will increase borrowing costs sooner than officials anticipate even though the Bank of England’s Monetary Policy Committee has kept its key interest rate at a record-low 0.5 percent since March 2009.

“Treasuries, bunds and gilts lead in this kind of move,” Steven Major, head of global fixed-income research at HSBC Holdings Plc, told Bloomberg.

While Ukraine is full of uncertainty, though, the UK economy is enjoying a confident period, with speculation now rife that the Bank of England will raise interest rates earlier than expected. As a result, the sterling has strengthened significantly against the US dollar this week.

Indeed, the dollar and the British pound are both benefitting from the Ukraine crisis, but they are also enjoying a boost thanks to mild uncertainty in the Eurozone too. The ongoing ECB stress tests are seeing investors flock to the dollar, a reminder that as much as confidence is an important factor in market values, doubt can be even more so.