Euro Lower on Prospect of More Sanctions on Russia

By Gina Lee – The dollar started the week on a firm foot as U.S. Treasury yields rose over expectations that the U.S. will further tighten its monetary policy. On the other hand, potential bans on Russian gas kept the euro within sight of its 2022 lows.

The U.S. Dollar Index that tracks the greenback against a basket of other currencies was steady at 98.547 by 11:41 PM ET (3:41 AM GMT).

The USD/JPY pair edged up 0.13% to 122.66.

The AUD/USD pair edged up 0.17% to 0.7512 and the NZD/USD pair edged up 0.12% to 0.6936.

The USD/CNY pair was steady at 6.3632, with Chinese markets closed for a holiday. The GBP/USD pair inched up 0.05% to 1.3118.

The euro continues to be weighed down by concerns that the war in Ukraine will continue to impact economic growth. It last bought $1.1047, not too far from March’s almost two-year low of $1.0806.

German Defence Minister Christine Lambrecht said the European Union should discuss ending Russian gas imports, with Italian Foreign Minister Luigi Di Maio saying that a debate on the issue could take place within the next few hours.

Ukraine accused Russian forces of carrying out a “massacre” in the town of Bucha, which the Russian defense ministry has denied.

“Negative news on the war or a further lift in energy prices could see EUR/USD test $1.0800,” Commonwealth Bank of Australia analysts said in a note.

“However, an improvement in sentiment or a weak dollar following the U.S. Federal Reserve minutes could push EUR/USD through upside resistance around $1.1150,” they added, in reference to the central bank’s minutes from its latest meeting, due to be released on Wednesday.

Friday’s U.S. jobs report was stronger than expected, with non-farm payrolls rising by 431,000 and the unemployment rate at 3.6%, in March. Further data also showed that the Institute of Supply Management manufacturing purchasing managers index (PMI) for March was 57.1, while the manufacturing PMI was 58.8. The data was enough to spur bets that the U.S. Federal Reserve will continue to tighten its monetary policy.

Fed funds futures have priced a near four-in-five chance of a 50-basis point hike in May and two-year yields stand at a three-year high of 2.4930%.

The yen steadied during the previous week after its pummeling throughout March. However, expectations of higher U.S. interest rates against anchored Japanese yields saw the yen drop back below 122 per dollar.

However, “the yen is not out of the woods,” Rabobank senior strategist Jane Foley told Reuters.

“Another prolonged bout of severe selling pressure on the yen could put pressure on the Bank of Japan to re-think its policy. We forecast further upside for dollar/yen towards the 125 level in the latter half of 2022.”