Dollar up after Russia-backed rebels attack Ukraine

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Dollar up after Russia-backed rebels attack Ukraine

Russia-backed rebels accused Ukrainian forces of shelling their territory in violation of agreements aimed at ending the conflict in the contested Donbass area, a report later denied by Ukraine.

After the news broke, investors were wary that Russia would invade Ukraine despite rising optimism at the beginning of this week that a diplomatic solution would be found to prevent conflict.

The dollar was up to 95.747 against a basket of its rivals after rising above 96 in early Asian trading.

The rouble was below the November 2020 high of 80 hit last month, indicating that markets were not panicking yet. Bond yields were only modestly higher, as it remained below a November 2020 high of 80 hit last month.

The market participants remain optimistic that conflict will be avoided, MUFG strategists said in a client note.

According to minutes from the most recent policy meeting, the news dwarfed the minutes of the January meeting of the Fed, where policymakers agreed that it was time to tighten monetary policy but also that decisions would depend on a meeting-by- meeting analysis of data.

Short-dated U.S. Treasury yields fell and the yield curve steepened after traders reassessed the probability of a 50 bps hike at the Fed's March meeting. Money markets were pricing in a 72% chance of a 50 bps hike next month, compared to 80% at the beginning of the week.

After falling as much as 0.4% after the Ukraine news, the euro rebounded from earlier lows. Ukraine's denial and the location of the reported attack within already contested territory calmed things and the euro last sat at $1.1382.

The yen and the Swiss franc held on to earlier gains, up 0.2% and 0.1% versus the dollar.