The Euro[1] suffered punishing losses in the first quarter of 2022. The currency is on pace to shed almost 3 percent against an average of its major counterparts, marking the worst three-month performance in 7 years. Taken together with losses in the second half of last year, the Euro is poised to give up nearly 4.5 percent over the course of nine months.
Losses are unsurprisnigly concentraded in March of this year, registered against the backdrop of Russia’s invasion of Ukraine in the closing days of February. The crisis has placed a shooting war directly in the Eurozone’s backyard, disrupting trade flows and triggering a flood of Westward-bound refugees.
These baseline headwinds have been compounded by knock-on effects from Western powers’ biting economic sanctions imposed to punish Moscow for the invasion. Most powerfully, these measures have frozen the Central Bank of Russia’s vast foreign reserves and cut off huge swathes of the country’s economy from the vital SWIFT bank correspondence system.
Russia will feel most of the pain from these measures, but not all of it. It is the broader EU’s fifth-largest trading partner, accounting for 5.8 percent of total trade in 2021. Europe buys key commodity inputs from Russia, including energy, wood, fertiliser, iron and steel. EU firms also sold over €120 billion in goods and services to Russia last year. The invasion and the follow-on sanctions regime have severely disrupted this activity.
Euro vs. Average of Major Currencies – Monthly Chart
Source: TradingView
Euro may bounce as the Ukraine crisis de-escalates
While the war in Ukraine continues to rage at the time of this writing, de-escalation may not be far away. Russia’s move to broaden the fight after early setbacks derailed an attempt at something faster and more surgical seems
