Tom Westbrook

SINGAPORE (Reuters – On Tuesday, the euro touched a low of 22 months. The war in Ukraine had darkened Europe’s economic outlook. Commodity currencies however took a break from their long rally.

After six consecutive sessions of selling the euro tried to rebound but it was still not far away from Monday’s low of $1.0806.

After Russia launched a special military operation in Ukraine that it called “special,” the currency has fallen 4% against the dollar. Fighting is not slowing down. On Monday, it flirted for the first-time in seven years with parity against the Swiss Franc.

Russia-Ukraine peace talks have failed to make any progress. Although Germany’s objection to Russian energy imports being banned has caused oil futures to drop from their 14-year high, analysts predict that this supply shock will affect European growth.

Carol Kong of the Commonwealth Bank of Australia strategist (OTC:), stated that “Markets may continue to price risk of Russian energy export disruptions and downgrade European growth outlook.”

We expect that the euro will remain under pressure. The euro/dollar could test the $1.068888 pandemic low in this month’s trading session.

On Thursday, the European Central Bank will meet with the fear of stagflation. Economists speculate that the European Central Bank might postpone rate increases until later in the year.

In addition to commodities’ parabolic rally, the conflict and subsequent sanctions had crushed Russian assets. The rouble plunged to a new low of 160 per dollar in erratic offshore trading on Monday.

Elsewhere, the U.S. Dollar was strong despite nerves about the war and the economic implications.

Japan’s rising oil import prices have already caused it to suffer its biggest currency deficit since 2014. This has impacted the value of yen, which was once considered a safe-haven.

Overnight, the yen dropped slightly and was at 115.48 dollars on Tuesday.

Both the Australian and New Zealand dollar were up 0.4% in morning trade but fell below their four-month highs due to the soaring prices of oil on Monday. It was at $0.7343 on Monday, just a cent below its peak.

They bought $0.6847. The Reserve Bank of New Zealand’s hike cycle is accelerating and the price has risen by 4.5% within a little over one month.

According to ANZ Bank analysts, energy price pressure could drive back-toback 50-basis point increases in April and May.