FOREX-Dollar, yen advance as Ukraine tensions escalate

Mon Mar 3, 2014 9:54am EST

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* Ukraine tensions heighten on Russia's military intervention

* Rise in U.S. spending and income helps dollar

By Gertrude Chavez-Dreyfuss

NEW YORK, March 3 (Reuters) - The dollar and yen gained on Monday as investors sought the safety of these currencies as Russia's military intervention in Ukraine's Crimean peninsula fanned geopolitical tensions.

The greenback was further supported by economic data showing an increase in U.S. personal income and spending in January in the midst of one of the worst seasons in recent memory.

But the worsening situation in Ukraine has rattled investors more.

"Investors turned to classic safe havens amid heightened tensions in Ukraine," said Joe Manimbo, senior market analyst, at Western Union Business Solutions in Washington.

"The deteriorating situation in Ukraine poses a fresh threat to the global economy. The world economy is already seen on a fragile footing due to mounting signs of weakness in China."

Ukraine said Russia was building up armoured vehicles on its side of a narrow stretch of water closest to Crimea after Russian President Vladimir Putin declared at the weekend he had the right to invade his neighbour to protect Russian interests and citizens.

The United States threatened to isolate Russia economically after Putin's action provoked what Britain's foreign minister called "the biggest crisis in Europe in the twenty-first century".

In mid-morning trading, the dollar index rose 0.3 percent to 79.885.

The dollar was also underpinned by data showing U.S. consumer spending rose more than expected in January, rising 0.4 percent, as outlays on services recorded their largest increase since late 2001, likely driven by demand for heating. Income also gained 0.3 percent in January after being flat the prior month.

The dollar's gains pushed the euro 0.2 percent lower at $1.3772.

However against the safe-haven yen, the dollar fell 0.4 percent to 101.43. The euro also dropped versus the yen, falling 0.6 percent to 139.67 yen.

"The one to watch in our opinion is dollar/yen given the overall increase in political risk and the evidence of a slowdown in China," said Ian Stannard, strategist with Morgan Stanley in London.

"If risk does become more challenged there is room for a lot more movement there. We favour a shift to as low as 97 yen per dollar."

Western powers have threatened to isolate Russia economically in the biggest confrontation with Moscow since the Cold War, raising a host of risks for Western Europe and the global economy.

The euro is the first safe port of call for capital from eastern European countries such as Poland, Latvia or Lithuania who may be the first to feel the fallout of any conflict or sanctions. But the euro zone also has close ties to Russia.

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