Dollar gains on euro as Ukraine crisis dims eurozone outlook

The signature of European Central Bank (ECB) President Mario Draghi is seen on the new 50 euro banknote during a presentation by the German Central Bank (Bundesbank) at its headquarters in Frankfurt, Germany, March 16 2017. REUTERS/Kai Pfaffenbach

NEW YORK, March 2 (Reuters) – The dollar rose slightly against the euro on Wednesday as investors worried about the impact of the escalating conflict in Ukraine on the euro zone’s economic outlook. , while commodity currencies strengthened.

The Russian ruble extended its recent decline to record highs in Moscow trading as scathing Western sanctions over Moscow’s invasion of Ukraine hit Russia’s financial system. Read more

“Developments around the war in Ukraine will remain the main driver of euro price action for the session,” said Shaun Osborne, chief currency strategist at Scotiabank.

“A continued escalation in the conflict with no clear exit ramps for Russia is pushing the euro towards a test of 1.10 in the coming days,” Osborne said.

The euro was down 0.3% against the dollar, after hitting a new 21-month low of 1.1059 earlier in the session.

“We believe investors should be underweight the eurozone in both currency and equity terms, given its vulnerability to any further escalation,” JP Morgan analysts said in a note on Wednesday.

Meanwhile, the US Federal Reserve will press ahead with plans to hike interest rates this month in an attempt to tame inflation, even as the outbreak of war in Ukraine has made the outlook “very uncertain,” Fed Chairman Jerome Powell said Wednesday. Read more

“Judging from his testimony alone…that’s pretty much in line with our view that the Federal Reserve is going to raise rates at the next meeting,” said Bipan Rai, head of North American currency strategy at CIBC Capital Markets in Toronto. .

The U.S. dollar currency index, which tracks its performance against six major currencies, rose 0.3% to 97.604. The index climbed as high as 97.834, its highest since June 2020, earlier in the session.

Data on Wednesday showed U.S. private employers hired more workers than expected in February and data for the previous month was revised upwards as the labor market recovery gathers pace. Read more

Commodity-linked currencies, including the Canadian, Australian and New Zealand currencies, strengthened as investors expected to profit from rising commodity prices.

Oil prices hit near eight-year highs, wheat 14-year highs and aluminium, benchmark contracts for Dutch gas and European coal hit record highs as Western sanctions on the Russia following its invasion of Ukraine disrupted Russian exports of raw materials.

The Aussie was up 0.19%, the kiwi was up 0.2%, while the loonie was up 0.4%.

“Whether or not that continues really depends on whether or not this rise in oil prices continues,” said Rai of CIBC Capital Markets.

The Canadian currency extended its gains after the Bank of Canada on Wednesday raised interest rates by 25 basis points to 0.50% in its first hike since October 2018, and said it would continue the phase of recovery. reinvestment of its bond purchase program. Read more

A slight pick-up in investor appetite for riskier currencies kept pressure on the Swiss franc and the Japanese yen, with the dollar rising 0.2% against the franc and 0.5% against the yen.

Bitcoin was up 0.83%, pacing its third straight day of gains, as some investors bet the cryptocurrency would benefit from increased volatility in financial markets.

Reporting by Saqib Iqbal Ahmed and Caroline Valetkevitch Editing by Tomasz Janowski

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