The US dollar soared to its highest level in nearly two years and the Russian ruble fell to a record low on Thursday after Russia launched its invasion of Ukraine, as investors fled riskier assets and turned to safe-haven assets.

Russian troops invaded Ukraine in land, sea, and airstrikes, in the biggest offensive on a European country since World War Two.

The dollar index was up 0.869% and is on pace for its biggest daily percentage gain since March 2020, when US markets were in the throes of the first wave of the COVID-19 pandemic. 

The dollar weakened slightly as US President Joe Biden announced new sanctions against Russia, including banks. There were major geopolitical developments that many had never seen before in their lives; this is a classic risk-off move.

The Russian ruble fell 4.51% versus the greenback to 84.96 per dollar after weakening to a record low of 89.986 per dollar. Against other safe-havens, the dollar was up 0.77% against the Swiss franc while the Japanese yen was down 0.54% versus the greenback at 115.61 per dollar.

Greenback Sees Sharp Gains Against the Euro

The greenback also rose sharply against other European currencies such as the Swedish crown, Hungarian forint, and Polish zloty. The Swedish krona fell 1.13% versus the US currency to 9.49 per dollar. The dollar was up 2.85% against the zloty and up 3.11% against the forint.

The greenback hit a high of 97.740 against a basket of major currencies, its highest since June 30, 2020. The euro was down 0.95% to $1.1202 while Sterling was last trading at $1.3393, down 1.10% on the day.

The greenback has weakened recently as tensions in Ukraine have escalated and fuelled speculation the US Federal Reserve may be less aggressive in policy tightening at its March meeting.

Expectations for at least a 50-basis point rate hike have fallen to 7.5% from around 34% a day ago, according to the CME FedWatch Tool.

Fed policymakers on Thursday acknowledged the central bank's tightening plans now compete with the possibility of war and its impact on oil prices.

The US dollar edged up on Wednesday as the latest developments in the Ukraine crisis dampened investors' appetite for risk, as a sell-off in equity markets helped boost safe-haven bids for the greenback.

Ukraine-Russia Tensions Are Very Affecting the Currency

After spending the early part of the day lower, the dollar started to strengthen as the situation in Ukraine improved and US stocks shed early gains, and the US State Department said a full-scale Russian invasion of Ukraine was still a possibility.

The United States and its allies are rolling out more sanctions against Russia, with the EU measures taking effect on Wednesday. Ukraine declared a state of emergency and told its citizens in Russia to return home, while Moscow began evacuating its embassy in Kyiv.

The greenback has weakened recently as tensions in Ukraine have escalated, fuelling speculation that the US Federal Reserve may be less aggressive in policy tightening at its March meeting.

Expectations for at least a 50-basis point rate hike have fallen to around 31% from around 45% a week ago, according to the CME FedWatch Tool.

The dollar index was up 0.161%, with the euro down 0.21% to $1.1301. The Russian ruble was down 2.70% versus the greenback at 81.13 after hitting 81.392 per dollar, returning gains made on Tuesday.

However, the dollar was lower against other safe-havens, such as the Japanese yen, which was up 0.05% versus the greenback to 115.01 per dollar, while the dollar was down 0.34% versus the Swiss franc at $0.918.

The greenback rose 0.69% versus the Swedish crown to 9.39 per dollar after Riksbank Deputy Governor Martin Floden said Monday that the central bank is unlikely to raise interest rates in the coming year or so.