Monday, May 23

Unloved euro catches a breath ahead of ECB


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SINGAPORE — The euro took a breather on

Wednesday ahead of this week’s central bank meeting, while

commodity currencies eased from recent peaks as investors

reckoned war-driven surges in energy, grains and metals could

end up crimping demand in the long run.

The euro was steady in early trade and has

recovered to $1.0898 from Monday’s 22-month low of $1.0806,

helped by a Bloomberg News report which citied unnamed officials

and the European Union was discussing joint bond issuance.

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Such a move could mean stimulus and a step toward a fiscal

union. But details were scant and analysts also said the euro is

unlikely to rise much while there is so much worry about the war

in Ukraine spreading. Fighting has not abated.

Sterling, which has been sold along with the euro, has

barely recovered and was pinned near a 16-month low at $1.3100.

The US dollar index is just below a 22-month peak

at 99.090.

“Our near-term pessimism is driven by a view that investor

fears that the war could extend beyond the Ukraine’s borders

will not dissipate quickly,” said Standard Chartered’s global

head of G10 FX research, Stephen Englander.

He expects the euro will fall to $1.06 by the end of the

quarter before slowing creeping toward $1.14 by year’s end if

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some kind of agreement to contain fighting is reached, but said

it would probably fall below parity if the war were to spread.

The European Central Bank meets on Thursday with the specter

of stagflation prompting economists to figure that policymakers

might delay rate hikes until late in the year.

Enthusiasm for commodity currencies as surging export prices

boost terms of trade also appears to be wavering since sky high

raw material costs also act as a tax on consumers and a brake on

world growth.

The Australian dollar, steady at $0.7274 on

Wednesday, is about 2% below Monday’s four-month high of

$0.7440. The kiwi, at $0.6809, is about 1.7% beneath

its Monday top.

“Market participants may switch their view from ‘buy

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Australian dollars because commodity prices are high’ to ‘sell

Australian dollars because very high commodity prices will cause

demand destruction,’” said Commonwealth Bank of Australia

strategist Carol Kong.

“It is still possible AUD/USD tests $0.7000 before the

impact of the war subsides.”

Surging oil costs are also dulling the luster of the yen as

a safe haven, since import spending propelled Japan to its

largest current account deficit since 2014 in January. The yen

touched a three-week low of 115.87 on Wednesday.

Russia’s onshore currency market is expected to open for the

first time this week at 0700 GMT.

The rouble, along with other Russian assets, has

taken a drubbing since Russia launched what it called a “special

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military operation” last month, and fell as low as 160 per

dollar in offshore trade this week, last recovering to 130.

===================================================== ======

Currency bid prices at 0045 GMT

Description RIC Last US Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Euro/Dollar $1.0902 $1.0894 +0.07% -4.11% +1.0906 +1.0890

Dollar/Yen 115.8250 115.6300 +0.21% +0.74% +115.8650 +115.7000

Euro/Yen

Dollar/Swiss 0.9296 0.9288 +0.09% +1.91% +0.9302 +0.9294

Sterling/Dollar 1.3100 1.3102 +0.02% -3.11% +1.3104 +1.3091

Dollar/Canadian 1.2880 1.2891 -0.08% +1.88% +1.2894 +1.2880

Aussie/Dollar 0.7274 0.7273 +0.03% +0.08% +0.7279 +0.7265

NZ 0.6811 0.6807 +0.04% -0.50% +0.6811 +0.6800

Dollar/Dollar

All spots

Tokyo spots

Europe spots

Volatilities

Tokyo Forex market info from BOJ

(Reporting by Tom Westbrook. Editing by Lincoln Feast.)

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