Growing Drumbeat Of Ukraine Conflict Escalation Inspires Risk Aversion

Headlines from Russian state media pointing to alleged shelling of targets in Luhansk and Donetsk People's Republics by Ukrainian security forces in breach of the Minsk agreements inspired a round of risk-off flows in G10 FX space. While the initial story was circulated by Sputnik, a portal often described as the Kremlin's propaganda outlet, it was quickly picked up by other Russian outlets.

• Reports of rising tensions in the Donbas came on the heels of comments from a senior U.S. official, who said that Russia's claims that it was reducing military presence near Ukraine were "false" and Moscow has instead added 7,000 troops along the border. There was a modest risk-off reaction to those remarks but it was promptly unwound, albeit markets were left on the alert for further developments.
• The prospect of military escalation in east Ukraine inspired a flight to safety, putting a bid into JPY and CHF. Major safe haven currencies gained at the expense of their riskier peers (save for NZD), with Scandie FX coming under particular pressure. The SEK landed at the bottom of the G10 pile owing to its sensitivity to the Ukraine crisis. The Russian rouble retreated as Moscow trading re-opened, but weekly lows remain some way off.
• The Aussie dollar was unfazed by domestic labour market data, as political risk headlines took precedence. Part-time jobs drove a surprise overall gain in employment in January, which absorbed marginally wider participation to generate an unchanged headline unemployment rate.
• U.S. housing starts & weekly jobless claims headline the global data docket today. Central bank speaker slate includes Fed's Bullard & Mester, ECB's Lane & de Cos, Norges Bank's Olsen & Riksbank's Breman.