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Dollar slips as investors become less concerned about Ukraine

© Reuters. FILE PHOTO: A picture illustration of U.S. dollar, Swiss Franc, British pound and Euro bank notes, taken in Warsaw January 26, 2011. REUTERS/Kacper Pempel

By Alun John

HONG KONG (Reuters) – The euro held on to overnight gains in early Asian trade on Wednesday having jumped on reports that some Russian forces had moved away from the Ukraine border, though, with tensions still elevated, the common currency failed to make further progress.

The Russian defence ministry on Tuesday published footage to demonstrate it was returning some troops to base after exercises, however, U.S. President Joe Biden said the United States had not verified the move.

In addition, hours after Moscow’s announcement, Ukraine said the online networks of its defence ministry and two banks were overwhelmed by a cyber attack.

The common European currency was steady at $1.1356 on Wednesday, having jumped 0.45% the day before.

Shares around the world rebounded following the reports, MSCI’s gauge of global equities closed up 1.34%. The Australian dollar, typically seen as sensitive to risk sentiment, echoed the euro, rising 0.37% on Tuesday, before steadying.

By contrast, the safe haven yen softened slightly and was last at 115.65 per dollar, having briefly touched 114.99 on Monday, when tensions were higher.

Overall, the dollar index which measures the greenback against six major peers, lost ground on Tuesday and was at 96.008.

However, analysts said the dollar was unlikely to fall too far.

The greenback “shed ground overnight as the Ukraine geopolitical risk premium came out of markets, but expectations of an aggressive Fed hike cycle should keep a base for the (dollar index) in place,” said analysts at Westpac in a morning note to clients.

The Fed is poised to raise interest rates at its March meeting, likely kicking off a fairly swift programme of hikes.

Higher producer price index data also helped send U.S. benchmark bond yields higher.

The yield on 10-year Treasury notes was last 2.0329, back near its two year high after dipping below 2% this week as tensions rose.

The dollar and U.S. rates could move later in the day after minutes of the Fed’s February policy meeting. Investors are looking to see whether the possibility of a 50 basis point rate hike was discussed.

This week, Fed officials have been publicly sparring over how aggressively to begin raising rates at their March meeting, with St. Louis Fed President James Bullard on Monday reiterating calls for a faster pace of Fed rate hikes.

Other Fed officials have been less willing to commit to a half-point hike, or were even concerned it could cause trouble.

Rate hikes are also supporting the British pound, which was at $1.3543.

Nearly two-thirds of respondents to a Reuters poll of economists, expect the Bank of England to raise rates by a further 25 basis points at its March meeting. That would be the first time the Bank has raised rates at three meetings in a row since 1997.

Euro holds gains after hopes of easing in Ukraine tensions

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