Ukraine stand-off keeps euro pinned

FILE PHOTO: Euro, Hong Kong dollar, U.S. dollar, Japanese yen, pound and Chinese 100 yuan banknotes are seen in this picture illustration
FILE PHOTO: Euro, Hong Kong dollar, U.S. dollar, Japanese yen, pound and Chinese 100 yuan banknotes are seen in this picture illustration, January 21, 2016. REUTERS/Jason Lee/Illustration/File Photo

February 17, 2022

By Tom Westbrook

SINGAPORE (Reuters) – The euro was weighed down on Thursday after a U.S. official said Russia was increasing troop numbers near its border with Ukraine rather than withdrawing, offsetting a boost it had caught overnight from a modest retreat in U.S. rate hike expectations.

The standoff on Europe’s eastern edge is one of the deepest crises in East-West relations for decades, and markets – and the euro – had rallied in relief at earlier Russian statements about a military pullback. A senior U.S. official told reporters on Wednesday that those statements were false.

The euro was pinned around $1.1379 early in the Asia session. The yen also held firm at 115.34 per dollar.

Overnight minutes from the Federal Reserve’s January meeting were less hawkish than some investors had expected and the dollar and bets on aggressive hikes eased a little bit.

“The minutes did not mention any discussion about a half-point move and didn’t disclose details about the timing or the monthly pace of the planned balance sheet reduction,” said Scotiabank strategist Qi Gao in a note.

The U.S. dollar index fell about 0.2% after the minutes to 95.769, where it traded on Thursday, though Gao said it could probably slide a bit lower toward 95.

Besides caution around Ukraine, another factor lending a floor to the dollar were whopping trade deficits in Europe and Japan caused by surging energy prices.

Data on Thursday showed Japan ran its biggest trade deficit in a single month in eight years in January, while Europe’s trade gap also widened in December and more than quadrupled with its biggest energy supplier, Russia.

Elsewhere better-than-expected employment data was not enough to lift the Australian dollar through resistance around $0.7210 and the currency hovered near that level.

The New Zealand dollar edged up 0.2% to a one-week high of $0.6696. A 25 basis point (bp) rate hike in New Zealand is fully priced for next week, with swaps trade pointing to a better-than-one-in-four chance of a 50 bp hike.

March hike expectations are also holding sterling firm and it was last steady at $1.3589.

China’s yuan was firm and near a three-week high at 6.3323 in offshore trade. The Singapore dollar was also firm

Ahead on Thursday speeches from Bank of Spain governor Pablo Hernández de Cos and European Central Bank (ECB) chief economist Philip Lane at 0800 GMT and 1400 GMT respectively will be closely watched for clues on the ECB outlook.

Federal Reserve Bank of St. Louis President James Bullard speaks at 1600 GMT and on Thursday U.S. jobless claims and the Philadelphia Fed manufacturing survey are also due.

(Reporting by Tom Westbrook. Editing by Lincoln Feast.)

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