Peter Nurse

Investing.com: The U.S. Dollar traded higher, while the Euro headed for its worst week since September 2009. This was due to the increased conflict in Ukraine. Safe haven flows and a decrease in European growth were triggered by the increase in violence. 

At 2:50 am ET (0750 GMT),, which monitors the greenback in relation to a basket six currencies, closed 0.3% higher at 98.055.

It fell to 1.1012, a mere 0.5% below the May 2020 low. The U.S. currency lost nearly 2% this week. This would make it its worst week since June 20,21.

Russian forces attacked Ukraine’s Zaporizhzhia power station, which is one of the largest in Europe. Moscow has tightened its control on its southern neighbour.

Energy prices have soared during this conflict as Western sanctions on Russia in the wake of its invasion of Ukraine have raised fears of severe energy shortages, mainly in Europe, given Russia’s importance in supplying the region with oil and gas. 

Russia gaining control or making it inactive can only contribute to this narrative to the detriment to European economic growth.

“This war will have devastating consequences for Ukraine. Russia will suffer both short-term and long-term economic consequences. However, the sanctions will have a devastating effect on EU countries,” said analysts from ING in a note.

Also adding support to the dollar was the confirmation by Federal Reserve Chair , on the second day of his semi-annual testimony to Congress, that he would support a 25 basis point hike at the central bank’s meeting later this month in order to combat soaring inflation.

At 8:30 AM ET (1330 GMT), the U.S. Monthly will be Friday’s major economic data. It should release another month of robust job growth. This gives the Fed more room to increase interest rates.

While inflation is also an issue in Europe, the Russian invasion of Ukraine threatens to derail the European economic recovery from the pandemic and delay even further the European Central Bank’s slow progress toward policy normalization.

“The war’s impact on eurozone growth could be anywhere in the 0.3%-1.0% region and the ECB will be treading very carefully when it comes to tightening policy,” ING added.

Other markets were flat at 115.47 and fell 0.2% to 1.3325, while the Australian dollar rose 0.3% to 0.7351, thanks to rising commodity prices.