Dollar edges up as Ukraine developments dent risk appetite

FILE PHOTO: A picture illustration of U.S. dollar, Swiss Franc, British pound and Euro bank notes, taken in Warsaw January 26, 2011. REUTERS/Kacper Pempel

By Chuck Mikolajczak

NEW YORK (Reuters) - The U.S. dollar edged higher on Wednesday as the latest developments in the Ukrainian crisis dented investor appetite for risk, as a sell-off in the equity market helped drive a safe-haven bid for the greenback.

After spending the early part of the day lower, the dollar began to strengthen as the situation in Ukraine intensified and U.S. stocks gave up initial gains, and the U.S. State Department said a full-scale Russian invasion of Ukraine remains potentially imminent.

The United States and allies unveiled more sanctions against Russia, with European Union measures taking effect on Wednesday. Ukraine declared a state of emergency and told its citizens in Russia to come home, while Moscow began evacuating its Kyiv embassy.

The greenback has been subdued recently as tensions in Ukraine have increased, fueling speculation that the U.S. Federal Reserve may be less aggressive in tightening policy at its March meeting. Expectations for at least a 50-basis-point interest rate hike have dipped to about 31% from around 45% a week ago, according to CME's FedWatch Tool https://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html?redirect=/trading/interest-rates/fed-funds.html.

"Given the current environment, I anticipate the Fed is going to become a little bit more cautious," said Edward Moya, senior market analyst at Oanda in New York.

"You are also seeing geopolitical tensions are going to keep risk aversion the go-to trade so any rebounds in risk are going to be faded."

The dollar index rose 0.161%, with the euro down 0.21% to $1.1301.

The Russian rouble weakened 2.70% versus the greenback at 81.13 after reaching 81.392 per dollar, giving back gains made on Tuesday.

The New Zealand dollar jumped after the Reserve Bank of New Zealand raised interest rates and said more tightening could be necessary. The kiwi last was up 0.59% versus the greenback at $0.677.

The rise in the New Zealand dollar, along with climbing crude prices, also helped other commodity-linked currencies such as the Canadian dollar and Australian dollar. Both Brent and West Texas Intermediate were up more than 1% on the day.

The Canadian dollar rose 0.22% versus the greenback to 1.27 per dollar while the Australian dollar rose 0.17% versus the greenback at $0.723.

The dollar was softer against other safe havens, however, such as the Japanese yen, which strengthened 0.05% versus the greenback to 115.01 per dollar, while the dollar fell 0.34% versus the Swiss franc at $0.918.

China's yuan touched a fresh four-year high against the dollar, amid signs the escalating Russia-Ukraine crisis is boosting foreign demand for Chinese assets. The greenback fell 0.17% versus the yuan to $6.312 per dollar.

The greenback rose 0.69% versus the Swedish crown to 9.39 per dollar after the Riksbank’s Deputy Governor Martin Floden said on Monday the central bank was unlikely to raise rates in the coming year or so.

In cryptocurrencies, bitcoin last fell 0.75% to $37,601.00.

Ethereum last rose 0.8% to $2,627.87.

(Reporting by Chuck Mikolajczak; editing by Jonathan Oatis)

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