Euro rises to month-high versus US dollar

London

THE US dollar fell to its lowest in almost 2 weeks on Wednesday (Mar 30) and the euro gained, with currency traders optimistic about peace talks in Ukraine, even amid warnings about the damage to Europe's economy.

The US dollar extended its losses on Wednesday, hitting a new 13-day low of 97.797, as investors changed their mind on their defensive bets.

At 7.07 pm Singapore time, the US dollar index was down 0.4 per cent on the day at 97.993. The euro rallied against the US dollar, with the pair up 0.4 per cent at 1.113, having touched its highest in 4 weeks.

The risk-sensitive Australian and New Zealand dollars also gained, with the Aussie dollar up 0.3 per cent on the day at US$0.7528.

"Markets appear to have taken an optimistic stance well before peace talks have yielded any result," ING FX strategists wrote in a note to clients.

"The FX market may be increasingly detached from trading the Russia-Ukraine situation and start to catch up with the wide moves in rate and growth differentials, all of which point to a stronger dollar."

Investors expect the US Federal Reserve, which raised rates by 25 basis points at its Mar 16 meeting, to be more hawkish than the European Central Bank, driving the US dollar higher against the euro.

The US Treasury yield curve, widely watched as a barometer of the economy's health, briefly "inverted" on Tuesday in a warning that bond investors see a recession on the horizon. But analysts attributed the US dollar weakness to improved risk appetite, rather than a loss of confidence in the United States' economy.

"When it comes to the FX market impact, the inversion is likely to play out more through a near-term cap in how high US 2-year yields can go as opposed to prompting risk-off pricing due to concerns over a US recession," said Simon Harvey, head of FX analysis at Monex Europe.

The yen staged a recovery from its recent 7-year lows, after a meeting between Bank of Japan Governor Haruhiko Kuroda and Prime Minister Fumio Kishida added to speculation about the level of official discomfort with a falling yen.

At 7.15 pm Singapore time, the US dollar was down 0.9 per cent on the day versus the yen, at 121.83, compared with the pair's recent high of 125.105 hit on Monday. REUTERS