Image © Adobe Stock

Russia has launched a full scale invasion of Ukraine, sending stock markets and European currencies hurtling lower, while commodities and safe haven currencies have advanced as a worst-case scenario from a geopolitical risk perspective unfolds.

Ukraine says its cities are under attack after Russian President Vladimir Putin said in the early hours of the morning he had authorised a "specialised military operation" in Ukraine's Donbas region.

U.S. President Joe Biden denounced the "unprovoked and unjustified" attack on Ukraine and said the "prayers of the world" were with Ukraine.

"I am appalled by the horrific events in Ukraine and I have spoken to President Zelenskyy to discuss next steps," says Prime Minister Boris Johnson. "President Putin has chosen a path of bloodshed and destruction by launching this unprovoked attack on Ukraine."

Johnson said the UK and its allies will respond "decisively" and more sanctions are almost certain.

Pound Sterling has been considered a relative safe haven amidst Ukraine-Russia risks relative to other European currencies and this is reflected in a higher Pound to Euro exchange rate which is seen moving above the 1.20 level again.

"Short-term European yields are now rapidly pricing away parts of the interest rate hikes," says strategist Filip Carlsson at SEB Bank.

Such a downgrade in rate hike expectations would provide natural headwinds to Euro exchange rates. We have reported that Greek central banker and ECB Governing Council member Yannis Stournaras has called for the ECB to extend quantitative easing until year-end, which would effectively rule out a rate hike this year.

The evergreen safe havens of the Yen, Franc and Dollar are all advancing while the Euro and other peripheral-European currencies such as the SEK and NOK struggling.

The Pound to Dollar exchange rate is down 0.85% on the day at 1.3427. (If you have currency payment requirements please request a quote with our partners at Global Reach for access to market-beating rates, orders and strategies to protect your money.)

Global stock markets are trading deep in the red with Germany's benchmark leading the major markets lower by trading down a massive 4.0%.

The major oil benchmarks have meanwhile surged above $100 and European gas prices have surged.

Image courtesy of IG.

"FX markets were not expecting this turn of events," says Chris Turner, Global Head of Markets and Regional Head of Research for UK & CEE at ING.

"GBP does have a higher correlation with risk, but so far, it is holding up quite well," says Turner.

Putin announced overnight military operations in Ukraine's eastern Donbas region in a televised speech.

He told Ukrainian troops opposed to Russian-backed rebels to lay down their arms, adding Russia did not plan to occupy Ukraine.

He warned that Moscow's response would be "immediate" if Ukranian soldiers fought back against Russia.

"To anyone who would consider interfering from outside: If you do, you will face consequences greater than any you have faced in history…I hope you hear me," said Putin.

Western governments have assessed there to be between 150K to 200K troops massed on Ukraine's borders.

The U.S. Embassy in Kyiv said, "there are reports of Russian attacks on targets in a number of major Ukrainian cities, including Kyiv, Kharkiv, Odesa, Ivano-Frankivsk, and Mariupol. U.S. citizens in Ukraine are advised to shelter in place."

CCTV feeds from the southern Ukraine border obtained by the BBC shows Russian forces streaming into the country.

The BBC reports troops in Belarus have been instructed to standby in order to assist Russian forces.

Reference rates at publication:

GBP to EUR: 1.1965 \ GBP to USD: 1.3452High street bank rates (indicative): 1.1730 \ 1.3175Payment specialist rates (indicative): 1.1905 \ 1.3385Find out more about specialist rates and service, hereSet up an exchange rate alert, hereIn a late night statement, Biden said “Tomorrow [ie today] I will be meeting with the Leaders of the G7, and the United States and our Allies and partners will be imposing severe sanctions on Russia”.

The most significant sanction against Russia would almost certainly involve banning Russian crude and gas from international markets, Pound Sterling Live reported yesterday of research that showed Europe can indeed live without Russian gas.

But whether inflation-battered economies can stomach such a sanction remains to be seen.

Regardless, markets are now factoring in severe sanctions.

"In the US, watch carefully for the progress of the Menendez Bill in Congress. This has been dubbed the 'mother of all sanctions bills' and given events overnight it seems its progress is highly likely," says Chris Turner, Global Head of Markets at ING Bank.

"While the Federal Reserve tightening cycle may be re-priced lower, we would still favour the dollar to outperform Europe right now. Trade and energy links to Russia are tiny compared to Europe. And dollar liquidity will be in demand at very uncertain times like this," adds Turner.

There will be an emergency meeting among G7 leaders later today where they will discuss a coordinated political and economic response towards Russia.

Currency analysts at Danske Bank says the West will now try to hit Russia as hard as they can economically through harsh sanctions.

"This could be either in the form of exclusion of Russia from the Swift system or a more limited option of the US and UK banning Russian banks from the use of USD and GBP, which the US President Biden and UK Prime Minister Johnson have been alluding to," says Jakob Ekholdt Christensen, Head of Emerging Markets Research at Danske Bank.

Prime Minister of Latvia Arturs Krisjanis Karins meanwhile called for a consultation among NATO member nations based on Article 4.

This effectively brings together NATO members in consultation in anticipation that one or more member states comes under attack.

"We have decided, in line with our defensive planning to protect all Allies, to take additional steps to further strengthen deterrence and defence across the Alliance," said a statement from NATO.