Euro edges higher, but focus still on Ukraine

THE euro edged higher against the dollar on Wednesday (Feb 23) with investors bracing for further developments in the Ukrainian crisis after Western countries announced sanctions against Russia for ordering troops into separatist regions.

"Ukraine headlines are currently the No 1 driver of the market," Matthew Ryan, senior market analyst at Ebury, said. "But if we look at the major currencies, we see investors pricing in some sort of peaceful solution to the crisis," he added. "They are optimistic about the fact that the worst-case scenario will be avoided."

Assuming no further escalation in Ukraine, Ebury is bullish on risk-on currencies as countries are lifting pandemic restrictions in a move that will support the global economy. The single currency staged a slight rebound on Tuesday after approaching its lowest since Feb 3, the day when the European Central Bank's hawkish shift boosted its exchange rate.

But some analysts expect the Ukrainian crisis to affect the ECB's decisions at its policy meeting next month.

Further escalation "seems increasingly likely and can be expected to motivate a cautious message by the ECB at the Mar 10 meeting", SEB Group analysts said.

The euro was up 0.15 per cent against the dollar at US$1.1348 after hitting its lowest on Tuesday since Feb 14 at US$1.1286. If "the situation in Ukraine escalates further, EUR-USD could therefore easily make another attempt towards 1.12", Commerzbank analysts said in a research note.

The Russian rouble weakened, reversing gains made the previous day as investors took stock of Western sanctions imposed on Russia. It fell 1.7per cent to 79.92 against the dollar.

The dollar index, which measures the greenback against 6 of its peers, fell 0.2 per cent to 95.898.

China's yuan touched a fresh 4-year high against the dollar, amid signs that the escalating Russia-Ukraine crisis is boosting foreign demand for Chinese assets.

Safe-haven currencies took a breather after rallying on concerns about an escalation of the Ukrainian crisis, but analysts said that they remained in demand.

The New Zealand dollar jumped 0.9 per cent after the Reserve Bank of New Zealand raised interest rates and said that more tightening could be necessary. REUTERS