US dollar rises to 2-week high amid Russian-West tension over Ukraine

[MILAN] The dollar rose to a two-week peak on Tuesday, as tensions between Russia and the West over Ukraine drew investors to safe-haven currencies while awaiting the outcome of this week's US Federal Reserve policy meeting.

Russia said it was watching with great concern after the United States put 8,500 troops on alert to deploy to Europe in the event of an escalation in the Ukraine crisis.

"Much greater exposure of European economies to the crisis does not make the euro a particularly attractive vehicle to ride out the current storm," ING analysts said.

The euro was down 0.4 per cent at US$1.1281 by 11.21 am (7.21 pm Singapore time) for its weakest level since Jan 5.

The dollar index rose 0.3 per cent to a two-week high of 96.19.

The Fed could firm up plans to raise interest rates and shrink its holdings of US Treasury bonds and mortgage-backed securities, which have swollen its balance sheet past US$8 trillion. The Fed meeting ends on Wednesday.

Analyst views on the meeting are mixed, with Deutsche Bank flagging a potentially hawkish surprise over the coming months, with the possibility of a rate increase in March and as many as 6 or 7 increases this year.

But ING analysts say that if the Fed's balance sheet reduction does the heavy lifting of policy normalisation, that could scale back forecasts for the number of rate hikes.

Commerzbank said that "markets are likely to remain nervous in the run-up to tomorrow's meeting, but we do not expect any new insights".

Money markets are pricing an 85 per cent chance of a Fed rate rise of 25 basis points in March and 3 more to 1.0 per cent by the end of the year.

The safe-haven yen gained 0.2 per cent against the euro and fell 0.2 per cent against the dollar, remaining within striking distance of one-month highs.

But Friday's data from the Commodity Futures Trading Commission (CFTC) showed that speculators held 11 times more gross yen short contracts than gross yen longs in the week ended Jan 18, with the balance falling by about 10 per cent from the previous week to 80,879.

The Swiss franc was down 0.2 per cent against the euro at 1.0374, just off the 1.0298 it hit recently for its strongest since 2015.

"It is possible that the Swiss National Bank will also have a rethink and it could remain tolerant towards a stronger franc for some time yet. However, we simply cannot be sure," Commerzbank analysts said.

CFTC data shows that gross Swiss franc long contracts numbered only 925, down from 4,571 the previous week.

Bitcoin, which has almost halved in value since touching a record high of US$69,000 in November, lost 1 per cent to trade around US$36,412. Meanwhile, ether, the world's second-largest cryptocurrency, was down 0.8 per cent at US$2,424.

REUTERS