As Ukraine Fuels Caution, the Dollar Floats

Russian news report of mortar fire in eastern Ukraine jangled market nerve; it bolstered the appeal of safe-haven bets. The US dollar remained flat on Thursday, and the Japanese yen held on to its earlier gains.

Rebels supported by Russia have accused Ukrainian soldiers of bombing their territory in breach of cease-fire agreements in the disputed Donbass region.

While the dollar fell from its Asian highs after the news, investors remained apprehensive that Russia would attack Ukraine again. The dollar held steady at 95.747 against a basket of competitor currencies after surging beyond 96 in early Asian trading.

The rouble, however, stayed below a November 2020 high of 80 sets last month; this indicated that markets were not yet panicked, while bond yields were only slightly higher. It powerfully shows that market participants believe that conflict will avoid in the long run.

According to minutes from the most recent policy meeting, officials agreed that it was time to tighten monetary policy but that choices would base on a meeting-by-meeting consideration of the evidence.

Shortly-dated US Treasury yields fell, and the yield curve steeped as traders reassessed the likelihood of a 50 basis point raise at the Fed’s March meeting. Money markets were pricing in a 72 percent chance of a 50 basis point rise next month; down from 80 percent earlier in the week.

After plunging as much as 0.4 percent in response to the Ukraine news, the euro rose from its lows. However, Ukraine’s denial and the alleged attack within already contested territory helped calm things down, and the euro last traded at $1.1382.

The yen and the Swiss franc maintained earlier gains against the dollar, rising 0.2 percent and 0.1 percent, respectively.