European Currencies Crumble With Ruble on Oil Embargo Threat

(Bloomberg) — European currencies are plunging to new lows as the war in Ukraine escalates, spurring macro traders to sell some of their most liquid assets.

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The euro fell below parity against the haven Swiss franc in Asia trading Monday, the first time it’s tumbled to that level since January 2015 amid heightened investor concern over Russia’s invasion of Ukraine. Poland’s zloty dropped to an all-time low against the euro. Every eastern European currency has slid against the dollar in the past week, led by losses in the ruble.

“It’s not possible to rationally judge when European currencies will stop falling until we see a clue to the end of Russia’s invasion of Ukraine,” said Daisaku Ueno, chief currency strategist at Mitsubishi UFJ Morgan Stanley Securities Co. in Tokyo. “The currencies of the countries that are the closest to the war zone have been sold given they will be most affected by a backlash against sanctions on Russia.”

No European currency has been spared from being sold this month. The euro, the second-most traded currency in the world and one of the “most liquid shorts” in Europe, slid about 5% in the past month.

Read More: Euro Risks Slide to Parity as Ukraine War’s ‘Most Liquid Short’

The euro dropped 0.4% to $1.0883 in Asia Monday after U.S. Secretary of State Antony Blinken said his country and its European allies are discussing a possible ban of Russian oil imports to tighten the economic squeeze. The common currency traded as low as 0.9972 against the Swiss franc.

The ruble was indicated 11% lower at 138.50 per dollar in offshore trading.

“The war in Ukraine will hit the European economy the hardest given its reliance on Russia’s oil,” said Takuya Kanda, general manager at Gaitame.com Research Institute in Tokyo. “The euro can drop toward $1.06.”

Hedge funds had gotten the direction wrong for the euro-franc pair last week, data from the Commodity Futures Trading Commission show. Leveraged funds cut net shorts on the euro to the least since July in the week ended March 1 while boosting those on the franc.

Market Interventions

The European Union’s eastern nations are stepping up market interventions to protect their currencies from the selloff. The Czech central bank sold foreign currency on Friday, joining the monetary authority in Poland, which intervened for the third time last week.

The Swiss National Bank said it was ready to intervene and address the rapidly strengthening franc, Schweiz am Wochenende reported, citing SNB Governing Board Member Andréa Maechler. The SNB is following the situation in the FX market very closely and is “ready to intervene if necessary,” Maechler said in an interview published Saturday by the Swiss newspaper.

The SNB “have clearly been more tolerant of CHF strength in the last year or so, but there will inevitably be limits to how much strength they will continue to tolerate,” said Ray Attrill, strategist at National Australia Bank Ltd. “If this is broad based EUR weakness as it is not just CHF strength, then there are limits to what one central bank can do acting on its own.”

(Adds new strategist comment in third paragraph, central bank interventions in eighth paragraph.)