By Stefano Rebaudo
(Reuters) – The euro rose on Tuesday on hopes of progress in peace talks between Ukraine and Russia despite soaring COVID-19 cases in China dampening risk appetite.
Further talks between Ukrainian and Russian negotiators to ease the crisis were expected on Tuesday after discussions via video ended with no new progress announced.
Brent futures extended losses on Tuesday, sliding to a two-week low as ceasefire talks between Russia and Ukraine eased fears of further supply disruptions.
“This reflects the hope that the talks between the Russian and Ukrainian negotiators might lead to an imminent and peaceful solution after all,” Commerzbank forex analysts said in a note to clients in reference to the decline in oil prices.
The euro climbed 0.55% to 1.0999 against the dollar.
“A solution to the conflict and an end of the war would be positive for EUR. However, doubts as to how much EUR would be able to appreciate in the end are justified,” they added.
The U.S. Federal Reserve is set to raise rates for the first time since the pandemic at its meeting which concludes Wednesday, with traders looking for indications about the pace of future rate hikes.
The U.S. dollar index, which measures the greenback’s value against other major currencies, fell 0.3% to 98.808. .
Analysts see a potential repricing in favour of the greenback should the Fed take a more hawkish than expected policy stance after its meeting, which ends on Wednesday.
The single currency weakened recently as the euro zone is far more dependent than other areas on Russian energy.
“With markets having processed the ECB’s hawkish surprise from last week, EUR/USD is back to being driven by sentiment around the Russia-Ukraine conflict,” ING analysts said. The markets’ approach to peace talks was optimistic, they said.
The European Central Bank decided to speed up the reduction of bond purchases last week, triggering a sharp rise in eurozone yields.
The yuan was flat at 6.3999, after hitting its lowest since October 2021 overnight of 6.4095.
On Tuesday, China posted a steep jump in daily COVID-19 infections, with new cases more than doubling from a day earlier, after imposing a rare travel ban to the southern technology hub of Shenzhen.
The Japanese yen rose 0.3% after falling to a fresh 5-year low against the dollar at 118.44 overnight as the Bank of Japan is set to keep monetary policy ultra-loose this week.
(Reporting by Stefano Rebaudo, Editing by Raissa Kasolowsky)