Since the publication of our latest FX forecasts at the beginning of the month, significant developments in the Russia-Ukraine war have put increased pressure on European currencies and equities. This was due to the increasing likelihood that sanctions would be imposed on Russian energy supplies along with signs that Russian forces would continue to increase aggressiveness. Talks around commodity-related sanctions pushed EURUSD to May 2020 levels of 1.080, as eurozone inflation expectations remain highly vulnerable to the energy outlook. This is especially the case as the eurozone imports 40% of its gas from Russia, and restricted supply due to sanctions would only further drive up prices. A similar reliance on Russian energy applies to currencies of Poland, Hungary, the Czech Republic, and Turkey. Over the last month, the respective currencies of these nations have therefore performed even worse than the euro. The question now is; where will price action stabilise?
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Author: Ima Sammani, FX Market Analyst