FOREX-Dollar near 2-week high as geopolitical tensions heat up

Wed Feb 26, 2014 10:53pm EST

Related Topics

* U.S. dollar stays near 2-week highs hit the previous day

* U.S. warns Russia it would be 'grave mistake' to intervene militarily in Ukraine

* Aussie dollar slips on weak domestic capital spending data

By Ian Chua and Masayuki Kitano

SYDNEY/SINGAPORE, Feb 27 (Reuters) - The U.S. dollar held near a two-week high against a basket of major currencies on Thursday, as heightening tensions in Ukraine helped support safe-haven demand for the greenback.

The dollar index was steady at 80.405, not very far from Wednesday's peak of 80.524, its highest since Feb. 13.

The dollar was underpinned after emerging market currencies came under renewed pressure on Wednesday, led by a fall in Ukraine's hryvnia after the central bank abandoned a managed exchange rate policy in favour of a flexible currency.

Raising tensions in the region, President Vladimir Putin ordered 150,000 Russian troops to be ready for war games near Ukraine, prompting the United States to warn Russia that it would be a "grave mistake" to intervene militarily.

Protest leaders in Ukraine, a former Soviet republic that Putin has called a "brother nation", want to form a new government following the overthrow of pro-Russia President Viktor Yanukovich.

Against the dollar, the euro held steady at $1.3687. On Wednesday, the euro had touched a low of about $1.3662, its lowest level in about two weeks.

The heightened tensions in Ukraine could keep the euro on the defensive, analysts said.

"Clearly it's all very sensitive at the moment and very, very tenuous I guess in terms of the situation," said Mitul Kotecha, head of global foreign exchange strategy for Credit Agricole in Hong Kong.

"I think that's probably what could provoke a bigger impact, because obviously you could end up seeing a big escalation of tensions between Russia and the West," he added.

The euro could prove particularly vulnerable versus the yen if tensions grow and risk aversion increases, Kotecha added.

The euro's moves versus the yen in Asia on Thursday were subdued, however, with the single currency holding steady at 140.12 yen.

The dollar edged up 0.1 percent versus the yen to 102.41 yen .

To be sure, there was no widespread panic in markets despite the heightened geopolitical risk. Asian equities were little changed on Thursday, while Wall Street ended nearly flat on Wednesday.

The Australian dollar fell 0.4 percent to $0.8935, coming under pressure after data showed a surprise 5.2 percent fall in Australian capital spending in the fourth quarter, the biggest drop in more than four years.

Federal Reserve Chair Janet Yellen's weather-delayed testimony before the Senate Banking Committee will be closely watched by the market later on Thursday.

"It would be a huge surprise if she amended the prepared testimony, but there should be plenty of interest in the lengthy Q&A session in front of the Senate Banking Committee," said Sean Callow, a currency strategist at Westpac in Sydney.

"One key line of inquiry should be her view on how much of U.S. data weakness lately can be blamed on the weather."

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