Euro slides as investors fret Ukraine crisis will hit economy

London

THE euro plunged to its weakest since May 2020 on Wednesday (Mar 2) as investors worried about the impact of an escalating conflict in Ukraine on the region's economic prospects, while demand for US dollars rose as nervous traders looked for safety.

The common currency fell half a per cent to as low as US$1.1069. Adding to the euro's woes there was a pullback in bets on a European Central Bank interest rate hike - German government bond yields plunged on Tuesday.

"For the euro which is front and centre with regard to the impact on trade relations, energy supplies and the economy, it's all negative," said Colin Asher, senior economist at Mizuho.

The US dollar gained again, with the dollar index rising 0.4 per cent to 97.755. The safe-haven Swiss franc outperformed, with the euro down 0.4 per cent at US$1.0186 - another 7-year low.

Russian forces were attempting to encircle and subdue Ukrainian cities with intensifying bombardments on Wednesday, 7 days into an invasion that has sparked massive international sanctions, pushing international companies to halt sales, cut ties, and dump tens of billions of dollars' worth of investments.

Russia's rouble remained under pressure at 108 per US dollar, having fallen as low as 120 earlier in the week.

Commodity linked currencies, such as the Australian dollar, continued to hold their own as surging prices for oil, gas, coal and grains provided support.

"The strength of commodity prices combined with Australia's much improved current account position suggests that there is good reason to expect AUD/USD to break with its traditional role of a 'higher risk' G10 currency," said Rabobank strategist Jane Foley, who expects it can climb to US$0.74 by the end of 2022.

In contrast, high energy prices have been capping gains for the safe haven Japanese yen, despite the geopolitical turmoil, as Japan imports the bulk of its energy. It slipped back to 115.24 per US dollar on Wednesday.

Elsewhere sterling weakened 0.3 per cent to US$1.3293. REUTERS