Home » Euro: with the Russia-Ukraine war it risks becoming a pariah currency. Strong sell off, worst week since Covid pandemic shock in 2020

Euro: with the Russia-Ukraine war it risks becoming a pariah currency. Strong sell off, worst week since Covid pandemic shock in 2020

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Euro: with the Russia-Ukraine war it risks becoming a pariah currency.  Strong sell off, worst week since Covid pandemic shock in 2020

Among the financial assets that are heavily discounting the war between Russia and Ukraine there is certainly the euro, which is about to close the worst week against the dollar since March 2020, when the Covid pandemic shock -19 overwhelmed all risk assets.

The single currency practically pays for relations between Europe and Vladimir Putin’s Russia. The sanctions against Moscow will undoubtedly have repercussions on the entire global economy, but Europe will certainly be confirmed as one of the most illustrious victims for its dependence on trade with Moscow; for the exposure of its banks – UniCredit among the first, together with Societé Generale, which among other things launched – to Russia; for that Russian gas that practically keeps its economy going. to the euro, the currency risks becoming an asset to be avoided not only due to its status as a risk currency, but also and above all, precisely, due to the dependence of the European economy on the Russian one, and therefore with the effect boomerang of sanctions, which equity indices are already discounting.

“In the current crisis, we believe the status of the euro is vulnerable,” commented Jane Foley, senior forex strategist at Rabobank. Foley highlighted “the network of complex relationships that, at a corporate level, exists between Europe and Russian companies, especially in the energy sector” (precisely) adding, in referring to the surge in energy prices, as well as that of agricultural product prices, that “the war in Ukraine suggests that inflation will be higher for a longer period of time, and with the potential for lower economic growth”.

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In short, a stagflation context. All these fears, coupled with the Russian bombing of Europe’s largest nuclear power plant in Ukraine, led the euro to drop to a low of $ 1,1008 in Asian markets, its lowest since May 2020. The The currency then reduced its losses, after Ukrainian and even foreign authorities gave reassurances on the radiation levels in the area, which would not be high. That said, over the course of this week, the currency dropped 2.1%, reporting the worst weekly loss since March 2020, in two years. The euro also tested the almost four-year low against the Australian dollar, and also slipped against the pound to its lowest value since July 2016, so in almost six years.

“This war will be devastating for Ukraine. As with Russia, the short- and longer-term implications are sure to cause damage to the economy. But the EU countries will be among those that pay the most for these sanctions, ”ING analysts wrote. The effects of the boom in gas and energy prices in general could in fact undermine the recovery of industrial investments and private consumption expected following the relaxation of the restriction-lockdown measures due to Covid-19 and, also, slow down the process of normalization of the monetary policy of the ECB by Christine Lagarde. “In next week’s ECB meeting (Thursday 10 March) any reference to the possibility of raising rates is out of the question”.

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