Euro tests support as Ukraine crisis threatens economic growth

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The euro was under pressure on Wednesday as intensified Russian bombardment of Ukrainian cities and soaring oil prices raised fears among investors of a hit to Europe’s economy and growth.

The common currency briefly fell below support to hit a 21-month low at $1.1090 overnight, before recovering a bit for the last trade at $1.1114.

“The risk is a sustained move below $1.1106 if market participants downgrade the eurozone economic outlook,” said Commonwealth Bank of Australia analyst Kim Mundy.

The British pound, which fell 0.7% overnight, was also compressed to $1.3305.

Russian forces were attempting to encircle and subjugate Ukrainian towns with intensified shelling on Wednesday, seven days after the start of an invasion that triggered massive international sanctions, prompting international companies to suspend sales, sever ties and to get rid of tens of billions of dollars of investments.

The Russian ruble remained under pressure at 108 to the dollar, after falling to 120 earlier in the week.

Commodity-linked currencies such as the Australian dollar continued to hold up, with surging oil, gas, coal and grain prices providing support.

The Australian dollar gained 0.2% to $0.7265, also helped by data showing that the Australian economy performed well in the fourth quarter.

The Aussie is at a one-year high against the euro.

The New Zealand dollar rose 0.2% to $0.6769.

“The strength in commodity prices combined with Australia’s much improved current account position suggests that there is good reason to expect the AUD/USD to break away from its traditional role as a global currency. G10 “highest risk,” said Rabobank strategist Jane Foley, expecting it. may climb to $0.74 by the end of 2022.

In contrast, high energy prices limited the gains of the safe-haven Japanese yen, despite geopolitical turmoil, as Japan imports most of its energy. It fell back to 115.06 to the dollar on Wednesday.

The US Dollar Index was slightly higher at 97.452.

Markets remained largely unmoved by US President Joe Biden’s State of the Union address. Biden broached the subject of America’s recent problems with high inflation, but the solutions he offered were long-term.

European inflation data is due at 10:00 GMT. A speech at 4:00 p.m. GMT by the European Central Bank’s chief economist, Philip Lane, will also be closely watched for insight from policymakers reflecting on the economic damage of the Ukraine crisis.

Bank of England policymaker Silvana Tenreyro will speak on the UK economic outlook at 18:00 GMT.

The Chinese yuan was flat in offshore trade at 6.3136 to the dollar, after weakening slightly on Tuesday.

In emerging markets, Eastern European currencies suffered steep losses overnight.

Bitcoin, meanwhile, rebounded from last month’s lows and last held around $44, its lead somewhat blunted by dollar strength.

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