The euro hovered near its weakest point in a month against the safe-haven dollar and yen on Wednesday as traders fretted over a potential military conflict in Ukraine and the possibility of accelerated Federal Reserve policy tightening.
The euro was flat at $1.303 after dipping to $1.1264 overnight for the first time since Dec. 21. It slipped 0.06% to 128.64 yen after touching 128.25 in the previous session, a first since December 21.
Western leaders stepped up preparations for Russian military action in Ukraine while Moscow said it was watching with great concern after 8,500 U.S. troops were put on alert to deploy to Europe in the event of an escalation.
The Fed ends its two-day policy meeting later in the day, with market players anxiously awaiting more information on the timing and pace of interest rate hikes, as well as how the central bank will slimming down its almost $9 trillion balance sheet, a process called quantitative tightening QT read more closely, as well as how the central bank will go about slimming down its almost $9 trillion balance sheet.
Money markets are currently priced for a first hike in March, followed by three more quarter-point increases by the end of the year.
The dollar index, which measures the currency against six major peers, was flat at 95.973, after climbing to 96.273 on Tuesday, the highest since Jan. 7. It has climbed as much as 1.74% from a two month low touched on January 14.
Any hints around the starting point for QT or sooner' and 'faster' on hikes could be market-moving, but we don't expect definitive signals, and the result could be mixed messages, they wrote.
After dipping to a more than three-week low of $1.3436 overnight, sterling was little changed at $1.35095. With Prime Minister Boris Johnson under investigation for possible COVID 19 lockdown breaches, sterling is contending with political uncertainty at home, due to jitters over Ukraine and the Fed.
The findings of an internal inquiry could be announced as soon as Wednesday, according to media reports. The Canadian dollar went up to CAD $1.2622 per greenback ahead of a Bank of Canada policy decision later in the day. Since January 7, the currency has recovered after dropping to CAD $1.2702 at the beginning of the week.
There is a huge amount of uncertainty surrounding the January Bank of Canada rate announcement as policymakers try to balance very strong realized data on employment and inflation from Q 4 versus the increase in COVID infections and subsequent lockdowns in late December and January, according to TD Securities analysts.
The Australian dollar was barely changed at $0.71555, consolidating after falling to a one-month low of $0.70905 on Monday.
The Reserve Bank of Australia meets next week, and traders are anxious to see if blowout inflation numbers released Tuesday force Governor Philip Lowe to backtrack on his previous insistence that rate hikes this year are extremely unlikely.
Australian stock and bond markets are closed on Wednesday for a holiday.