Euro wavers as traders await EU's Ukraine response

London

THE euro gave back some of its overnight gains on Thursday (Mar 10), after its biggest daily jump since 2016, as traders waited for the European Central Bank (ECB) and European Union leaders to shed light on the bloc's policy response to Russia's invasion of Ukraine.

The common currency on Wednesday benefited from a risk-on shift in sentiment that lifted equity markets and bond yields and saw oil prices drop amid optimism about diplomatic efforts to resolve what the Kremlin refers to as a "special operation" to disarm Ukraine.

The euro has been widely seen as a gauge of Europe's biggest security crisis since 1945 and touched a 22-month low of US$1.0804 earlier in the week, with investors expecting a sizeable impact on European growth.

At 1128 GMT, about an hour ahead of the ECB meeting, the euro was trading at US$1.1046, down 0.28 per cent after jumping 1.6 per cent on Wednesday, its best day in nearly 6 years.

ECB policymakers may give clues about how they intend to balance the risk of higher inflation with the damage war in Ukraine will cause to economic growth.

Investors currently expect the central bank to gradually phase out its pandemic bond-buying scheme and hike its key interest rate by a total of about 33 basis points before the end of the year.

The ECB is trailing other major central banks such as the US Federal Reserve and the Bank of England in the post-pandemic tightening cycle, which has weighed on the euro.

Recent speculation that EU leaders were considering joint bond issuance to finance energy and defence spending have, however, boosted the currency. The bloc's summit will begin later today in Versailles, west of Paris.

The dollar index was up 0.19 per cent after falling 1.17 per cent on Wednesday and traders were waiting for US inflation figures, also due later in the day, to further guide expectations for the Federal Reserve's meeting next week.

Elsewhere, sterling was down 0.18 per cent at US$1.3163 after jumping 0.65 per cent overnight along with the euro, while the safe-haven yen was at 115.95 per dollar, close to its lowest in a month, hurt by a rise in sentiment towards riskier assets like equities. REUTERS