FOREX-Euro rises as Ukraine talks get underway, yen sees modest rebound

The euro rose on Tuesday as Ukrainian and Russian negotiators met in Turkey for the first direct talks in more than two weeks. The U.S. dollar was lower but still not far off its highest in nearly two years, while the yen staged a modest rebound after tumbling on Monday to its lowest level since August 2015.

Any step towards a ceasefire or potential peace deal in Ukraine would support the common currency as the euro area is seen suffering the most significant economic impact of the conflict, which began with Russia’s invasion on Feb. 24. Ukrainian and Russian negotiators met in Turkey on Tuesday, with Ukraine seeking a ceasefire without compromising on territory or sovereignty as its forces have pushed Russians back from Kyiv.

Versus a basket of currencies, the dollar was down 0.3% at 98.767, but not far from its highest level since May 2020 at 99.415. “Our view on the greenback remains positive due to the Federal Reserve’s hawkish stance. We think the dollar index can exceed the 100 points threshold soon,” Roberto Mialich, forex strategist at Unicredit said.

The euro was up 0.5% at $1.1033. “Unless there is positive news from the negotiations between Ukraine and Russia, EUR will continue to struggle climbing back above the 1.10-mark against USD on a sustainable basis,” You-Na Park-Heger, foreign exchange analyst at Commerzbank, said in a research note to clients.

The greenback fell 0.3% to 123.5 against the yen after rising to its highest level since 2015 on Monday, while it is set for its biggest monthly rise since November 2016. The chart below shows monthly percentage changes of the dollar/yen exchange rate.

MONETARY POLICY DIVERGENCE Japanese Finance Minister Shunichi Suzuki said the government would closely watch currency moves to prevent a “bad” weak yen that hurts the economy.

“While the comments from Japanese officials overnight are unlikely to reverse the yen weakening trend on their own, they should at least help to slow the recent fast pace of yen selling”, Lee Hardman, currency and emerging market analyst at MUFG, said in a note to clients. The Bank of Japan on Tuesday kept up its relentless quest to defend a key yield cap by offering to buy unlimited amounts of 10-year government bonds, putting even more downward pressure on the yen.

“The divergence between the U.S. and Japan’s monetary policy will continue to weigh on the yen, which we expect to stabilize at around 125 versus the dollar and probably even beyond that level,” Unicredit’s Mialich argued. The Swedish crown rallied recently as the spread between German and Swedish 10-year yields rose to 62 bps from 36 bps in mid-March.

China’s offshore yuan was little changed against the greenback at 6.3831 after new pandemic restrictions in Shanghai. It hit its lowest since October 2021 at 6.4106 in mid-March. Shanghai, China’s most populous city, tightened the first phase of a two-stage COVID-19 lockdown, asking residents to stay indoors.

Bitcoin was down 0.5% at $47,722 after hitting its highest level since early January on Monday. Ether, the world’s second-largest cryptocurrency, was up 3.3% at $3,443.

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