* Euro premium erodes as Ukraine tensions seen easing
* U.S. Feb CPI up 0.1 pct, matches consensus estimate
* Yuan down against dollar and yen
* Yen benefits broadly, helped by Ukraine worries
By Daniel Bases
NEW YORK, March 18 A modest easing of
geopolitical tension in Ukraine and a slight increase in U.S.
Treasury yields took some premium away from the euro on Tuesday,
sending it down against the U.S. dollar and the yen.
The Chinese yuan deepened its month of losses against the
greenback on more signs of problems with a slowing economy and a
heavily indebted corporate sector. The yuan's weakness was seen
as a benefit for the yen, helping lift it against the greenback.
Market strategists pointed to comments by Russian President
Vladimir Putin that he did not plan to seize other regions of
Ukraine as a signal the crisis may not deepen. Putin signed a
treaty on Tuesday making Crimea part of Russia, defying
Ukrainian protests and Western sanctions.
"Right now I am more inclined to treat this as intra-day
noise," said Marc Chandler, chief global currency strategist at
Brown Brothers Harriman in New York. "As much as I do think
geopolitics should be a bigger euro negative and bigger negative
on Europe as exposures to Russia and Ukraine are much bigger, I
don't think the market is focusing on that. I think the market
is focusing on the lack of escalation in the tensions."
"I think the Crimea was a foregone conclusion and we have
known that at least since the weekend. But I think the sanctions
now are more rigorous or harder now than the sanctions that were
put on Russia after they went into Georgia in 2008," Chandler
The euro dipped 0.11 percent to $1.3904, having
briefly broken down to $1.3891, but it essentially remained in a
narrow trading range with a high on the day of $1.3941.
The crisis in Ukraine led to a sharp drop in Germany's ZEW
survey of investor and analyst sentiment, contributing to early
losses for the euro.
The dollar fell to 101.51 yen, a loss of 0.25 percent
against the Japanese currency.
There was little impact on markets from U.S. consumer
inflation data, which showed a slight rise of 0.1 percent, a
muted increase despite rising food prices.
"We see a significant risk off which is fading, linked to
Ukraine, then we still have the worry of China, but it is not
leading to contagion. It is receding," said Sebastian Galy,
senior currency strategist at Societe Generale in New York.
Reversing one of the past decade's few sure bets in the
foreign exchange market, the Chinese yuan is down around 2.5
percent in the past month. That move has resumed since officials
widened the trading band for the currency over the weekend.
A survey of 970 global investors by Barclays showed that
China's problems have replaced the U.S. Federal Reserve's
reining in of monetary policy as the biggest concern for market
players since the start of 2014.
"I've squared up now but I think there's a risk that the
yuan could go to 6.30-6.40 per dollar," said Graham Davidson, a
foreign exchange trader at Australian bank NAB in London.
"The yen will tend to gain against the dollar as the yuan
The yuan weakened to 6.1795 to the dollar versus
Monday's close around 6.1580.
There are differing schools of thought on the fallout for
Japan of a weaker yuan. On the one hand it allows Japan's big
manufacturers to invest more cheaply in producing cars and
electronics in China, while the competitive advantage of those
factories also grows. Profits can then flow back into Japan.
On the other hand, a generally weaker Chinese economy poses
problems for Japan given China's importance as a market for
Japanese products and investment.
Dealers say that many of those who were betting strongly at
the start of this year on further gains for the yuan are still
to be shaken out, and that the currency could go much lower.
The main barrier to that is the People's Bank of China
itself, which has kept its reference rate for the yuan around
6.13 for a week, encouraging speculation it may defend the top
end of its newly widened 2 percent band around 6.25 per dollar.
"If the top of the band is 6.25-6.27 they are not showing
any great signs of wanting to let that go," Davidson said.
The yuan - which is not fully convertible internationally
and trades in a complicated system of "offshore" and Chinese
"onshore" rates - was 0.5 percent lower against its Japanese
counterpart at 16.4331.