FOREX-Dollar edges towards 2022 lows on rate hikes, Russian gas talk

152
2
FOREX-Dollar edges towards 2022 lows on rate hikes, Russian gas talk

SINGAPORE Reuters -- The dollar made a firm start to the week as Treasury yields rose with expectations of rapid U.S. interest rate hikes and talk of bans on Russian gas kept the euro within sight of its 2022 lows.

Last month, the euro was weighed down by worries about the economic damage from war in Ukraine and 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 consider 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.

A negative news on the war or a further lift in energy prices could see EURUSD test $1.0800, Commonwealth Bank of Australia analysts said in a note.

They said that an improvement in sentiment or a weak dollar could push EURUSD into upside resistance around $1.1150, referring to March Fed meeting minutes due for release on Wednesday.

The dollar was up a bit against the Australian and New Zealand dollar as the commodity currencies' rally cools with easing export prices, as the broad mood was cautious in early trade. The U.S. dollar index was steady around 98.529.

The Federal Reserve's resolve to tackle inflation will be strengthened by lifting rates sharply, as the data showed that the U.S. unemployment hit a two-year low of 3.6% last month, strong enough for investors to believe that it would strengthen the Federal Reserve'sFederal Reserve's resolve to tackle inflation.

The Fed funds futures have priced a near 4 5 chance of a 50 basis point hike next month, and two-year yields are at a three-year high of 2.4930%.

The yen, which settled last week after a pummelling through March on expectation of higher U.S. interest rates against anchored Japanese yields, has dropped below 122 per dollar and last traded at 122.33.

Jane Foley, a senior strategist at Rabobank in London, said the yen is not out of the woods.

The Bank of Japan will be rethinking its policy after another prolonged bout of severe selling pressure on the yen. The Australian dollar last bought $0.7495 and was steady ahead of a central bank meeting on Tuesday and the kiwi fell to $0.6905.