Asset prices have moved to price in some degree of military intervention in Ukraine, but are far from embedding a full-fledged Russian invasion. Let's see whether today's Scholz-Putin meeting paves the way for a diplomatic solution – this could hold the dollar back and help pro-cyclicals recover, in the view of analysts at ING.

Scholz-Putin meeting holds key to today's market mood

“Markets will follow very closely today’s meeting between German Chancellor Scholz and Russian President Putin, largely seen as one last chance for the West to mediate a diplomatic solution. Meanwhile, the US has pledged to provide substantial financial help to Ukraine in case of invasion.” 

“There is a considerable amount of downside risk for high-beta currencies, and in particular, the European ones, should tensions escalate further. Oil’s rally can offer some shield to Canada's dollar and Norway's krone.”

“While indications that the Ukrainian situation may be heading to a diplomatic solution could help pro-cyclical currencies recover and lift some support from safe-havens (including the dollar), we expect the narrative around frontloading of tightening by the Federal Reserve to put a floor under the dollar in the near term even if the geopolitical risk is priced out.”