Euro jumps after Ukraine offers neutral status

London

THE euro jumped on Tuesday after some progress was reported in peace talks between Russia and Ukraine.

Russia promised at the talks in Istanbul to drastically scale down its military operations around Kyiv and the northern Ukrainian city of Chernihiv, while Ukraine proposed neutral status with international guarantees.

The US dollar was lower, while the yen staged a modest rebound after tumbling on Monday to its lowest level since August 2015.

Any step towards a ceasefire or potential peace deal in Ukraine would support the common currency as the euro area is seen suffering a significant economic blow from the conflict, which began with Russia's invasion on Feb 24.

The euro was up 1.3 per cent at US$1.1125, at its highest since March 18.

"Unless there is positive news from the negotiations between Ukraine and Russia, EUR will continue to struggle climbing back above the 1.10-mark against USD on a sustainable basis," You-Na Park-Heger, foreign exchange analyst at Commerzbank, said in a research note to clients.

Versus a basket of currencies, the dollar was down 0.6 per cent at 98.470, but not far from its highest level since May 2020 at 99.415.

"Our view on the greenback remains positive due to the Federal Reserve's hawkish stance," Roberto Mialich, forex strategist at Unicredit, said.

The US dollar fell 0.9 per cent to 122.7 against the yen after rising to its highest level since 2015 on Monday. It is set for its biggest monthly rise since November 2016.

Japanese Finance Minister Shunichi Suzuki said the government would closely watch currency moves to prevent a "bad" weak yen that hurts the economy.

"The divergence between the US and Japan's monetary policy will continue to weigh on the yen, which we expect to stabilise at around 125 versus the dollar and probably even beyond that level," Unicredit's Mialich argued.

The Swedish crown rallied recently as the spread between German and Swedish 10-year yields rose to 62 bps from 36 bps in mid-March.

China's offshore yuan rose 0.2 per cent to 6.3738 against the greenback after new pandemic restrictions in Shanghai. It hit its lowest since October 2021 at 6.4106 in mid-March. REUTERS