Euro edges higher, but focus still un 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 Stefano Rebaudo

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

The Ukrainian military said one soldier had been killed and six wounded in increased shelling by pro-Russian separatists using heavy artillery, in the two breakaway regions over the previous 24 hours. [nL1N2UY0FZ]

“Ukraine headlines are currently the number one 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 10 March meeting”, SEB Group analysts said.

The euro was up 0.15% against the dollar at $1.1348 after hitting its lowest on Tuesday since Feb. 14 at $1.1286.

If “the situation in Ukraine escalates further, EUR-USD could therefore easily make another attempt towards 1.12,” Commerzbank (DE:CBKG) 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 1.7% to 79.92 against the dollar.

The dollar index, which measures the greenback against six of its peers, fell 0.2% to 95.898.

China’s yuan touched a fresh 4-year high against the dollar, amid signs 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 they remained in demand.

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

The Swiss franc was flat against the euro at 1.0432, after hitting its highest since Feb. 22 at 1.0335 on Tuesday. In January it reached its highest since June 2015 at 1.0298.

The yen fell 0.2% to 130.5 against the single currency after touching a 3-week high at 129.34 on Tuesday.

The oil price-sensitive Norwegian crown rose 0.4% versus the single currency, hitting a fresh high since Feb. 15 at 10.032. with Brent crude futures falling but just off their seven-year highs hit the previous day. [nL1N2UY0KB]

The Swedish crown rose 0.1% against the euro after the Riksbank’s Deputy Governor Martin Floden said on Monday the central bank was unlikely to raise rates in the coming year or so.

Euro edges higher, but focus still un Ukraine

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