(Refiles to remove extra word from headline)
* Euro off lows ahead of ECB policy review
* Dollar index eases from 14-month high
* Dollar/yen edges towards 6-year high
By Anirban Nag
LONDON, Sept 3 The euro climbed against almost
every major currency on Wednesday 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
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
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.
YEN AWAITS BOJ MEETING
Against the yen, the dollar was flat at 105 yen, off a
eight-month high of 105.28 yen. A rise above 105.45 yen
would take the dollar to a high not seen since October 2008.
"While we expect no change to policy, Governor Kuroda may
sound somewhat optimistic about inflation reaching its target at
his press conference," Yujiro Goto, currency strategist at
Nomura, said referring to Bank of Japan chief Haruhiko Kuroda.
"That may see the yen recover some ground and some profit
taking in dollar/yen. But the dollar's momentum against the yen
is towards the upside, especially given the U.S. data. So any
dip in the dollar should be used as a buying opportunity."
Apart from U.S. data which is likely to buoy the dollar, the
yen is likely to stay on the defensive amid renewed hopes about
a highly anticipated portfolio shift in Japan's behemoth
Government Pension Investment Fund (GPIF).
The GPIF asset allocation overhaul, due to be announced in
coming weeks, is expected to see the fund move into riskier
assets including stocks and foreign bonds, which could increase
demand for foreign currencies.
In a move welcomed by the Tokyo stock market, Japanese Prime
Minister Shinzo Abe drafted Yasuhisa Shiozaki, a proponent of an
overhaul of the GPIF, to head the ministry of labour, health and
welfare, which oversees the GPIF.
Meanwhile, sterling was at $1.6460, having tested a
low of $1.6445 in Asian trade, its lowest since Feb. 12.
It rose towards $1.65 after better-than-expected UK data,
having posted its biggest one-day percentage fall since January
this year on Tuesday after a poll that showed growing support
for the "yes" vote in the Scottish referendum.
(Editing by Hugh Lawson and Toby Chopra)