Nuclear Issues Rising, US Dollar Jumps Ahead of NFP Data Release
The US dollar exchange rate was supported by high demand for safe haven assets combined with Powell's hawkish testimony ahead of the release of NFP data later this evening.
The US dollar index (DXY) opened jumping to around 98.00 in trading this Friday (4/March), continuing to advance in its highest range since June 2020. Testimonials from the second day of The Fed Chair Jerome Powell again support the prospect of an interest rate increase of 25 basis points, thus strengthening the US dollar. On the other hand, the euro, its main rival, continues to be under pressure from the Russia-Ukraine war.
Russia and Ukraine yesterday agreed to establish a "humanitarian corridor" and opened up the possibility of a limited cease-fire to accommodate fleeing civilians. However, tensions have not subsided. This morning, Ukrainian President Volodymyr Zelensky accused Russia of deliberately shelling the Zaporizhzhia nuclear power plant and causing a fire at this high-risk public facility.
Although the Zaporizhzhia fire has been extinguished, Zelensky reminded that there are 15 nuclear reactors in Ukraine. If one of them explodes, the Chernobyl tragedy is likely to repeat itself.
This situation worsened the euro and ruble exchange rates, while keeping energy commodity prices at record highs. The Commodity Dollar remains resilient, due to heightened market concerns over the supply of various commodities amidst the war. Meanwhile, the US dollar was supported by high demand for safe haven assets combined with Powell's hawkish testimony.
The currently high US dollar exchange rate puts it in a vulnerable position to be corrected if the release of Non-Farm Payroll (NFP) data later tonight is not as good as expected. However, some analysts still tend to be optimistic about the greenback.
"The dollar is in a significant vein at the moment, benefiting from safe haven flows and solid US economic conditions," said Joe Manimbo, senior market analyst at Western Union Business Solutions, "This week's data has been really bullish (for the USD)... so if we see strong (United States) job growth coupled with oil exacerbating inflation, we think that will keep the Fed on track for a major rate hike."
"The Ukraine crisis has really boosted oil, and we see it as a real source of significant weakness for the euro and a major source of strength for commodity currencies," added Manimbo.
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