Safe-haven dollar gains as traders assess risks from Poland missile strike

The safe-haven U.S. dollar edged higher against major peers on Wednesday as markets continued to assess news of a Russian-made rocket striking NATO-member Poland, and whether it could lead to an escalation of the Ukraine war.

The risk-sensitive Australian dollar and sterling both flipped from small early gains to similar-sized losses as leaders from the United States, Britain, Germany, Japan and other countries met on the sidelines of the Group of 20 meeting in Bali.

However, the moves were muted compared with the volatility in currencies overnight when unconfirmed reports broke that two people in a Polish village had died in an explosion caused by Russian missiles near the border with Ukraine.

Poland has since said that the deaths were due to a Russian-made rocket, and that it is weighing whether to request consultations with allies under Article 4 of the NATO treaty. Russia denied that its weapons struck Poland.

"The currency market is stabilising, toying with the notion that this was a stray missile or an intercepted missile and doesn't necessarily imply an escalation in the war, with NATO needing to get involved," said Rodrigo Catril, a senior currency strategist at National Australia Bank.

The U.S. dollar index, which measures the currency against six peers and weights the euro most heavily, rose 0.19% to 106.63.

The euro was 0.05% lower at $1.0345, while sterling sank 0.21% to $1.18435. The dollar added 0.12% to 139.47 yen, and was 0.19% higher at 7.0544 yuan in offshore trading.

Declines in risk-sensitive Antipodean currencies were more pronounced though, weighed down by a slide in regional equity markets. The Aussie fell 0.24% to $0.6740 and the New Zealand dollar dropped 0.41% to $0.6132.

 

(Reporting by Kevin Buckland; Editing by Edmund Klamann)