Euro marches higher on Russia troops news

London

THE euro rebounded on Tuesday (Feb 15), nearly erasing all of Monday's losses, while the US dollar's losses deepened after reports some Russian troops in areas near Ukraine have started returning to their bases.

Against the greenback, the single currency climbed 0.4 per cent to US$1.1354, and within striking distance of Monday's high of US$1.1369, as European stock markets rebounded on the news while bond yields headed higher.

Some troops in Russia's military districts adjacent to Ukraine are returning to their bases after completing drills, Russia's defence ministry said on Tuesday, a move that could de-escalate frictions between Moscow and the West.

"Russia's decision to return some troops to their bases following the completion of some military exercises has stoked a relief rally in equities, while weighing on the dollar, gold, and oil," said Marc Chandler, chief market strategist at Bannockburn Global Forex.

While the biggest beneficiary of the news was the rouble which jumped as much as 2 per cent on the news, investors also dumped safe-haven currencies such as the yen and the Swiss franc. The Japanese unit registered its second biggest daily rise this year on Friday on rising tensions.

Rising geopolitical worries had kept a lid on the euro's gains in recent days even as the European Central Bank joined its central bank peers in signalling a hawkish turn in its monetary policy at a meeting this month.

The euro tumbled to a near 2-week low on Monday after Ukrainian President Volodymyr Zelenskiy called on citizens to fly the country's flags from buildings and sing the national anthem in unison on Feb 16, a date some Western media have cited as a possible start of a Russian invasion.

"While any news about a potential de-escalation is welcome, I think the markets will want to see something more concrete before judging the crisis to be over," said Stuart Cole, head macro economist at Equiti Capital.

"By this I think it will require the removal from the border of sufficient troop numbers or military hardware that makes an invasion materially more difficult to undertake." REUTERS