Spotlight on the Currencies of Ukraine’s Neighbours

Spotlight on the Currencies of Ukraine’s Neighbours

Since Russia’s invasion of Ukraine, global financial markets have been on edge, and currencies in neighboring countries have been notably impacted. The US dollar has cemented its position as a safe-haven currency, but other traditionally considered safe currencies like the Swiss franc and Japanese yen have lost ground. These fluctuations provide insight into the broader impact of geopolitical tensions on regional currencies.

Performance of Safe-Haven Currencies

The US dollar has maintained its safe-haven status throughout the conflict, strengthening amidst the instability. However, other safe-haven currencies, such as the Swiss franc and Japanese yen, have failed to follow suit. Over the past month and a half, the Swiss franc has weakened by 1.2%, and the yen has experienced a substantial drop of 8.6%.

The proximity of Switzerland to Ukraine may partially explain the franc’s weaker performance. Unlike the Swiss franc, which is geographically closer to the conflict, Japan is separated by over 5,000 miles, making the decline in the yen more puzzling.

Neighbouring Currencies and Their Reactions

The currencies of Ukraine’s neighboring countries have followed similar patterns of volatility since Russia’s invasion. Specifically, the Czech koruna, Polish zloty, and Hungarian forint saw significant declines against the US dollar between February 24 and March 7, with the US dollar gaining between 9% and 14% against these currencies. This sharp weakening was consistent with broader market trends in the wake of the invasion.

Interestingly, there was a brief period of stabilization or reversal in these currencies around March 8-9, when the initial expectations surrounding Russia’s invasion seemed to change. This may indicate that investors began to realize that Russia’s military campaign was not proceeding as expected, prompting some currency recovery. However, the gains were short-lived, and the currencies remained weaker overall compared to their pre-invasion levels.

Currency Performance Breakdown

• Czech Koruna (USDCZK): The koruna has been the least affected, weakening by only 3% since the invasion.
• Polish Zloty (USDPLN): The zloty has fallen by 4.9% against the US dollar.
• Hungarian Forint (USDHUF): The forint has seen the steepest decline, down by 7.8%.

Conclusion

While the US dollar has maintained its strength as a safe haven, other safe-haven currencies like the Swiss franc and Japanese yen have been underperforming. The currencies of Ukraine’s neighboring countries have also been hit hard by the geopolitical crisis, with the Czech koruna showing relative resilience. The fluctuations in these currencies underscore the regional and global economic uncertainties arising from the ongoing conflict and highlight the vulnerability of neighboring economies to geopolitical events.