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Euro recovers on hopes for Ukraine

Wednesday, September 03 14:13:41

The euro climbed against almost every major currency today on speculation of a possible ceasefire in eastern Ukraine, offering some comfort to the euro zone economy, which has borne the brunt of the impact of the conflict.

The euro bounced after Ukraine's President Petro Poroshenko press office said an agreement was reached with Russia's Vladimir Putin for a "permanent ceasefire" in eastern Ukraine's Donbass region.

The news sent European stocks higher and safe-haven German Bunds lower. However, the Kremlin said Putin and Poroshenko had agreed on steps towards peace in eastern Ukraine, but a ceasefire had not been agreed between Moscow and Kiev because Russia is not a party to the conflict.

The mixed messages injected some volatility, but most investors took heart from the headlines which indicated that both countries were moving towards peace. The conflict and the resulting trade sanctions imposed by western countries on Russia have taken its toll on the euro zone.

"The headlines are offering some comfort to the euro," said Ian Gunner, portfolio manager at Altana Hard Currency Fund. "With short positions against the euro so stretched, any genuine move towards peace will see sanctions being dismantled and see the euro bounce."

The euro was last trading up 0.1 percent on the day at $1.3155, recovering from a one-year low of $1.3110 struck on Tuesday, given the risk of a dovish European Central Bank. While the ECB is unlikely to take action this week, the threat of falling prices, along with uncertainty to the recovery from the Russia/Ukraine conflict, is likely to see President Mario Draghi flag the prospects of more easing in coming months.

The euro's recovery saw the dollar index edge down 0.17 percent to 82.85, although it was not far from a 14-month high of 83.058 struck earlier in the day. The dollar has made an impressive start to the month on strong economic data and a rise in Treasury yields.

Treasury yields steadied after a sharp rise, putting a brake on the dollar's rally, while the yen was supported by expectations that the Bank of Japan, which began a two-day policy meeting, may sit tight and reiterate its view that the economy is recovering moderately. (Reuters)

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