Russia’s aggression toward Ukraine could escalate into conflict

It has been another day of volatility and risk-off as US yields surged. The US 10-year yield hit a two-year peak of 1.866% overnight. In line with Treasury yields, the US dollar strengthened against a basket of currencies, hitting a one-week high of 95.83 DXY.

Conflict is a concern as Russia’s aggression toward Ukraine has prompted a reaction from the likes of the UK. Officials at the UK Foreign Office have been told to be ready to move into “crisis mode” at very short notice.

“This is critical work in shaping and securing our European neighbourhood,” staff were told in a communication.

However, “crisis mode” is not an indication the UK government thinks an invasion is imminent or definitely happening, but part of putting precautionary plans in place that would shuffle staff to higher priority areas and allow the FCDO to move quickly if the status is triggered, Bloomberg reported.

Nevertheless, there are reports that the UK is sending light, anti-armour, defensive weapon systems to Ukraine to help Ukraine increase its defensive capabilities.

Meanwhile, the White House said Tuesday that the current tensions presented an "extremely dangerous situation."

"We're now at a stage where Russia could at any point launch an attack in Ukraine," White House press secretary Jen Psaki told a press conference.

Meanwhile, it's expected that if Russia were to invade Ukraine, NATO would be likely to raise its alert level This would entail sending reinforcements of its troops in the Baltics and Poland and even in southeastern Europe.

This in turn would be a challenge for the EU. If Russia does invade, the EU would be likely to impose sanctions on Russia and risk a cut in supplies of gas to Europe (energy prices are already sky-high and inflation is a burden on the economy).

All in all, the US dollar, yen and Swiss franc are ones to watch, so too is gold; all of which are the typical safe havens.

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