Peter Nurse

Investing.com – The U.S. dollar has largely held on to last week’s gains with traders fretting over the potential of a war in Eastern Europe as well as high inflation and potentially aggressive Federal Reserve interest rate hikes. 

The Dollar Index (which tracks the greenback in relation to a basket six currencies) traded 0.1% lower at 96.040 at 2:55 AM ET (755 GMT). It had risen sharply towards the end of last Week.

Jake Sullivan, White House National security Adviser said Sunday in an interview to CNN that a Russian invasion against Ukraine is possible.

“We cannot perfectly predict the day,” he said, “but we have now been saying for some time that we are in the window, and an invasion could begin — a major military action could begin — by Russia in Ukraine any day now.”

These have benefited the safe haven currencies. They are down 0.1% on 115.36, compared to last week’s five-week high at 116.34. 

On the flip side, was largely unchanged at 1.1349, well below last week’s high of 1.1495, while the risk-sensitive was down 0.2% at 0.7120, well below last week’s levels.

The ruble fell 0.8% to 76.5920. This follows a drop of two weeks earlier that saw it plunge to its lowest level. While these geopolitical tensions are weighing on the Russian currency, the country’s central bank on Friday delivered its third 100 basis-point interest-rate hike in less than a year, adding support. 

This volatile situation adds to reasons to support the dollar, after hotter-than-expected data last week raised expectations that the  Federal Reserve will start tightening its monetary policy with a 50 basis point interest rate hike in March.

Mary Daly of San Francisco Federal Reserve Bank attempted to manage such expectations by Sunday.

These views may be turned around this week by Fed speakers. St. Louis Fed’s Bullard and Cleveland Fed President Loretta Mester are to speak on Thursday. Fed Governor LaelBranchard will be speaking on Thursday, along with New York Fed President John Williams (Fed Governor Christopher Waller), Chicago Fed President Charles Evans and Chicago Fed president Charles Evans.

Additionally, Wednesday’s from the Fed’s January meeting, will be scrutinized for any indications on how big a move officials are contemplating.

“In advance of what could be a very aggressive Fed tightening cycle, we remain bullish on the dollar,” said analysts at ING, in a note. “Currently we would favour that strength being played out selectively. But were Fed tightening to get out of hand, raising fears of recession, we would expect the dollar to rally more broadly.”