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Equity markets were up in the Asian session, continuing a
pick-up in sentiment on Wall Street as markets became hopeful
that the Ukraine conflict could end - although this move ran out
of steam as European shares opened in the red.
Russia promised on Tuesday to reduce its attack on Kyiv, but the
United States said it had not seen "signs of real seriousness"
from Russia in pursuing peace.
The dollar extended its losses on Wednesday, hitting a new
thirteen-day low of 97.797, as investors changed their mind on
their defensive bets.
At 1107 GMT, the dollar index was down 0.4% on the day at
97.993. The euro rallied against the dollar, with the pair up
0.4% at 1.113, having touched its highest in four weeks..
The risk-sensitive Australian and New Zealand dollars also
gained, with the Aussie up 0.3% on the day at $0.7528.
"Markets appear to have taken an optimistic stance well before
peace talks have yielded any result," ING FX strategists wrote
in a note to clients.
"The FX market may be increasingly detached from trading the
Russia-Ukraine situation and start to catch up with the wide
moves in rate and growth differentials, all of which point to a
stronger dollar."
Investors expect the U.S. Federal Reserve, which raised rates by
25 basis points at its March 16 meeting, to be more hawkish than
the European Central Bank, driving the dollar higher against the
euro.
The U.S. Treasury yield curve, widely watched as a barometer of
the economy's health, briefly "inverted" on Tuesday in a warning
that bond investors see a recession on the horizon. But analysts
attributed the dollar weakness to improved risk appetite, rather
than a loss of confidence in the United States' economy.
"When it comes to the FX market impact, the inversion is likely
to play out more through a near-term cap in how high U.S. 2-year
yields can go as opposed to prompting risk-off pricing due to
concerns over a U.S. recession," said Simon Harvey, head of FX
analysis at Monex Europe.
In Europe, data and policymaker warnings highlighted stalling
growth, plummeting confidence and soaring inflation as the
European economy feels the heat from the war in Ukraine.
Spain's flash CPI data for March showed prices rising at their
fastest since May 1985. But ECB President Christine Lagarde said
food and energy prices should stop rising, helping the euro zone
avoid the combination of stagnant growth and high inflation
feared by economists.
The German government's council of economic advisers slashed its
growth forecast for Europe's largest economy, citing economic
uncertainty due to Russia's invasion of Ukraine.
The yen staged a recovery from its recent seven-year lows, after
a meeting between Bank of Japan (BOJ) Governor Haruhiko Kuroda
and Prime Minister Fumio Kishida added to speculation about the
level of official discomfort with a falling yen.
At 1115 GMT, the dollar was down 0.9% on the day versus the yen,
at 121.83, compared with the pair's recent high of 125.105 hit
on Monday.
(Reporting by Elizabeth Howcroft;Editing by Robert Birsel;
Editing by Kirsten Donovan)
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