Forex Response as Sanctions on Russia Worsen

We expect to see a significant Forex response as sanctions on Russia worsen. Sanctions were increased on Russia’s energy sector as the civil war in Ukraine continues and a Malaysian commercial jet is shot down by a missile as it passed over eastern Ukraine. According to the Telegraph, UK,

The [downed airline] incident comes a day after sweeping US sanctions against Russia’s top oil producer and key energy companies had already shattered the illusory summer calm on Moscow’s markets, raising fears of an investment freeze and a protracted crisis that could last for years.

The rebels in eastern Ukraine are widely believed to be receiving material support and sanctuary from the Russian Federation. The approach of the West has been to begin the process of integrating Ukraine into the EU and visit sanctions on the energy and financial sectors of Russia. The end result could be the loss of financing for many Russian energy projects.

Yen Climbs versus the Euro

We can certainly expect to see the Ruble fall against other currencies as a Forex response as sanctions on Russia worsen. However, the Euro is likely to suffer too as tensions rise between Ukraine and Russia and Russia and the West. There is a five month high of the Yen versus the Euro as traders look to the safe haven Yen.

The yen appreciated to a five-month high versus the euro after the US and EU imposed a new round of sanctions against Russia in response to the situation in Ukraine, which fueled demand for safer assets.

Risk of Wider War in Ukraine Russia Theater

One is reminded of the Guns of August, the unraveling of relationships in the days prior to World War One in the downing of commercial Malay jet MH17 by rebels in Eastern Ukraine.

A Malaysian airliner was shot down over eastern Ukraine by pro-Russian militants yesterday, killing all 295 people aboard, a Ukrainian interior ministry official said. Raising the stakes in the East-West showdown between Kiev and Moscow, the official blamed “terrorists” using a ground-to-air missile and Ukraine’s prime minister called the downing of the flight from Amsterdam to Kuala Lumpur a “catastrophe”.

This action took place one day after rebels shot down a Ukrainian jet and the same day that the US announced stiff sanctions that are likely to shut down many proposed expansions of Russian energy projects. Israel is invading Gaza. Terrorists are trying to set up an Islamic Caliphate across Syria and Iraq. And the civil war in Eastern Ukraine threatens to expand. The Forex response as sanctions on Russia worsen may be only part of the puzzle as broader conflict drives money to safe havens and away from risky investments and risky currencies.

If Calmer Heads Prevail

It is said the President Kennedy had just finished reading Barbara Tuchman’s The Guns of August when the Cuban Missile Crisis broke out. Many credit the insights of Tuchman’s views of how World War One broke out with how Kennedy handled the blockade of Cuba and avoided a broader conflict. It can be hoped that the lessons of the past will guide Russia, the EU, USA and forces on the ground to seek peaceful solutions and not plunge the world into war and the world economy into the abyss.