Euro edges higher, but focus still on Russia-Ukraine crisis

(Reuters) - The euro edged higher against the dollar on Wednesday with investors bracing for further developments in the Ukrainian crisis after Western countries announced sanctions against Russia for ordering troops into separatist regions.

Satellite imagery over the past 24 hours shows several new troop and equipment deployments in western Russia and more than 100 vehicles at a small airfield in southern Belarus, which borders Ukraine, according to U.S. firm Maxar.

"The short-term movement in all currency pairs is mainly driven by the escalation levels," Moritz Paysen, forex and rates adviser at Berenberg, said.

"Surprisingly, the euro remained stable against the USD despite the risk-off movement, but we assume that this will not be the case for much longer and that the euro will then lose ground accordingly," he added.

The single currency staged a slight rebound on Tuesday when it approached its lowest since Feb. 3, the day when the European Central Bank's hawkish shift boosted its exchange rate.

But some analysts expect the Ukrainian crisis to affect ECB's decisions at its policy meeting next month.

Further escalation "seems increasingly likely and can be expected to motivate a cautious message by the ECB at the 10 March meeting", SEB Group analysts said.

The euro was up 0.1% against the dollar at $1.1340 after hitting its lowest on Tuesday since Feb. 14 at $1.1286.

But, according to Commerzbank analysts, "monetary policy is taking a back seat, and risk aversion is in the driving seat".

"If the situation in Ukraine escalates further, EUR-USD could therefore easily make another attempt towards 1.12," they said in a research note.

The Russian currency fell 0.9% at 79.38 against the dollar.

The dollar index, which measures the greenback against six peers, fell 0.1% to 96.949.

The New Zealand dollar jumped 0.8% after the Reserve Bank of New Zealand raised interest rates and said more tightening could be necessary. Safe-haven currencies took a breather after rallying on concerns about an escalation of the Ukrainian crisis, but analysts said they remained in demand.

The Swiss Franc was down 0.1% against the euro at 1.0435, after hitting its highest since Feb. 22 at 1.0335 the previous day. In January it hit its highest since June 2015 at 1.0298.

The yen fell 0.5% to 130.47 against the single currency after hitting its highest since Feb. 3 at 129.34 on Tuesday.

The oil price-sensitive Norwegian crown was slightly higher versus the single currency, hitting a fresh high since Feb. 15 at 10.0475.

Oil prices steadied as it became clear the first wave of U.S. and European sanctions on Russia for sending troops into eastern Ukraine would not disrupt oil supplies.

The Swedish crown rose 0.1% against the euro after Riksbank's Deputy Governor Martin Floden said on Monday the central bank was unlikely to raise rates in the coming year or so.

 

(Reporting by Stefano Rebaudo, Editing by Nick Macfie)