FOREX-Euro hamstrung by Ukraine worries, dollar up

Sun Aug 31, 2014 7:40pm EDT

Related Topics

* Euro dips to fresh one-year low vs USD

* EU threatens Russia with new trade sanctions

* SNB head says bank ready to intervene to defend cap

* U.S. Labor Day holiday to dampen overall market on Monday

By Ian Chua

SYDNEY, Sept 1 (Reuters) - The euro slipped to a fresh one-year low early on Monday as the situation in Ukraine worsened, although a holiday in the United States and major central bank events later in the week will probably keep investors sidelined.

The common currency fell as far as $1.3127, from around $1.3140 late in New York on Friday, reaching lows not seen since early September 2013. It last traded at $1.3131.

Ukrainian President Petro Poroshenko warned a "full-scale war" was imminent if Russian troops continued an advance in support of pro-Moscow rebels as Europe and the United States threatened Russia with further new sanctions.

Analysts said the risk to euro zone growth posed by the Ukraine conflict and stubbornly low inflation should keep the pressure on the European Central Bank to provide further stimulus at some stage, if not this week.

"It is too early for the ECB to announce new policy measures, given that the two most powerful policies announced in June are not yet deployed," analysts at Barclays said, referring to the ECB's targeted long-term repo operations and asset-backed securities purchases.

"But a minority of market participants expect new policy at this week's meeting. As a result, inaction may be greeted by temporary relief from euro depreciation, but we would see any short-term rallies as a selling opportunity," they wrote in a note to clients.

The euro posted its second straight month of losses against the greenback in August, falling a further 1.9 percent following a 2.2 percent drop in July.

Pressure on the euro helped the dollar index reach a high not seen in over 13 months. It peaked at 82.773, before easing back a touch to 82.742.

The euro, though, firmed against the Swiss franc after the head of the Swiss National Bank (SNB) said it stood ready to intervene in the currency market to defend its cap on the franc.

The common currency climbed to 1.2067 francs, pulling away from a near two-year trough of 1.2049 set last week.

The SNB introduced a 1.20 per euro cap in 2011 to prevent the franc's strong appreciation from further hurting the economy, although it has not had to defend the cap for the last two years.

Despite the geopolitical tensions, there was no meaningful safe-haven bid for the yen. That saw the dollar edge up to a one-week high of 104.21. The euro was little changed at 136.75, not far from last week's low of 136.42.

Central banks in the euro zone, Japan, Britain, Canada and Australia all hold their respective policy reviews this week, starting with the Reserve Bank of Australia (RBA) on Tuesday.

The RBA is considered almost certain to keep its cash rate steady at 2.5 percent for a 13th straight month.

The market will also be keeping an eye on a survey of China's manufacturing sector due at 0100 GMT. Analysts polled by Reuters expect activity in the country's vast factory sector to weaken as demand faltered. (Editing by Shri Navaratnam)

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