SINGAPORE: The dollar made a firm start to the week as Treasury yields rose with expectations of rapid-fire US interest rate hikes, while talk of bans on Russian gas kept the euro within sight of its 2022 lows.
The euro has been weighed down by worries about the economic damage from war in Ukraine and last bought $1.1047, not too far from last month’s almost two-year trough of $1.0806.
Germany’s defence minister said on Sunday that the European Union must discuss banning imports of Russian gas, which could drag further on growth and the currency, after Ukrainian and European officials accused Russian forces of atrocities.
Ukraine accused Russian forces of carrying out a “massacre” in the town of Bucha, which was denied by Russia’s defence ministry.
“Negative news on the war or a further lift in energy prices could see EUR/USD test $1.0800,” Commonwealth Bank of Australia analysts said in a note.
“However, an improvement in sentiment or a weak dollar following the (Fed) minutes could push EUR/USD through upside resistance around $1.1150,” they added, referring to March Fed meeting minutes due for release on Wednesday.
Elsewhere, talk of new sanctions kept the broad mood cautious in early trade, and the dollar was up a bit against the Australian and New Zealand dollars as the commodity currencies’ rally cools with easing export prices.
The US dollar index was steady around 98.529.
Data on Friday also showed US unemployment hitting a two-year low of 3.6% last month, strong enough that investors bet it would strengthen the Federal Reserve’s resolve to tackle inflation by lifting rates sharply.
Fed funds futures have priced a near 4/5 chance of a 50 basis point hike next month and two-year yields stand at a three-year high of 2.4930%.
The yen, which steadied last week after a pummelling through March on the expectation of higher US interest rates against anchored Japanese yields, has been squeezed back below 122 per dollar and last traded at 122.33.
“The yen is not out of the woods,” said Jane Foley, a senior strategist at Rabobank in London.
“Another prolonged bout of severe selling pressure on the yen could put pressure on the Bank of Japan to re-think its (policy).
We forecast further upside for dollar/yen towards the 125 level in the latter half of the year.“
The Australian dollar last bought $0.7495 and was steady ahead of a central bank meeting on Tuesday and the kiwi dipped to $0.6905.
Sterling hovered at $1.3155.