Dollar Rises After Manufacturing PMI Data And Ukraine Negotiations Fail

The US Dollar was appreciated by the US Manufacturing PMI data which rose above expectations. Meanwhile, the Russian-Ukrainian negotiations failed to reach an agreement.

The US Dollar continued its rally in the trading session late Tuesday (01/March), supported by the positive US Manufacturing PMI and the Russia-Ukraine conflict. The US Dollar Index is up 0.73% to 97.45 at the time of writing.

US Manufacturing PMI Rises, Russian-Ukrainian Negotiations Fail

The US ISM Manufacturing PMI was reported up from 57.6 to 58.6 in February. This gain was higher than the expected increase to 58.0. Infection with the Omicron variant of COVID-19 which is starting to subside in the US has made manufacturing activity revived. Although overshadowed by slowing recruitment of workers and rising raw material prices, the increase in manufacturing activity indicates a reduction in supply chain problems.

Apart from that, the surge in the US dollar tonight was also influenced by its function as a safe haven. High-level negotiations between Russia and Ukraine held on the Ukrainian-Belarusian border did not result in any agreement today. As a result, missile attacks and explosions are still reverberating in Kyiv. However, the two countries that are currently at war will return to negotiations.

The Russian side wants its demands to be fulfilled unconditionally, including legitimizing Russia's sovereignty over Crimea and guaranteeing Ukraine's neutral status. Ukraine's neutral status means that it will not join NATO. On the other hand, Ukraine, which wants to join NATO, expects a ceasefire and the immediate withdrawal of Russian troops from its territory.

The Impact of the Russia-Ukraine Conflict on the US Economy

Basically, the US economy will not experience a major impact due to the Russia-Ukraine war. This is because not many US imports come directly from Russia. According to The New York Times columnists Jeanna Smialek and Ana Swanson, the impact of the Russia-Ukraine war will be most felt in the oil sector, considering that Russia is one of the world's largest oil exporters.

"The question is: How long will oil and natural gas prices remain high?" says Alan Detmeister, economist at UBS, "Everyone is guessing about this."

Rising oil prices will trigger an increase in inflation. Even though US inflation is currently skyrocketing due to the COVID-19 pandemic. The Fed, which has already taken steps to raise interest rates next March, is expected to have to rack its brains again in formulating monetary policy amid new uncertainties.