* Safe havens yen, Swiss franc bid as tensions in Ukraine
* Participants also focused on U.S. data this week
* Euro softens but still within sight of two-month highs
By Patrick Graham
LONDON, March 3 The Japanese yen was at its
strongest in a month against the dollar on Monday and looked set
for more gains as investors sought safe havens from the risk of
conflict in Ukraine and an economic slowdown in China.
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
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.
Russia's central bank hiked its key lending rate by 1.5
percentage points on Monday after the rouble hit an all-time low
on President Vladimir Putin's declaration at the weekend of his
right to invade Ukraine.
In early European trade, the single currency was down more
than half a percent against the yen at 139.62, close to
overnight lows. It also fell 0.2 percent to $1.3780.
The dollar, whose gains against the yen marked the biggest
move on major currency markets last year, was down around half a
percent at 101.33 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
The U.S. dollar and the Australian dollar hit one-month lows
of 101.25 yen and 90.08 yen respectively
overnight, with the slide in Tokyo shares adding an extra boost
to the Japanese currency.
The safe-haven Swiss franc was also in favour, rising to its
highest in over a year against the euro. It rose as far as
1.2108 francs per euro before edging back to 1.2124.
Investors were wary of testing the Swiss National Bank's
commitment to defend its cap of 1.20 per euro on the franc.
Dealing risk appetite a further blow, a government survey on
Saturday showed activity in China's factory sector slowed to an
8-month low in February, reinforcing signs of a modest slowdown
in the world's second-biggest economy.
Still, the euro was hovering within distance of a two-month
peak above $1.3820 touched on Friday after data showed euro zone
inflation was steady, cooling expectations the European Central
Bank might ease monetary policy later this week.
"There is also the ECB to factor in this week and overall
there is room to be nervous of the euro at these levels," said
one senior dealer with a London bank.
A run of data, including the ISM manufacturing report on
Monday and non-manufacturing report on Wednesday as well as
factory orders on Thursday will give investors an opportunity to
gauge the pace of U.S. growth and its potential implications for
the Federal Reserve's plan to unwind its stimulus programme.
Analysts at JPMorgan described two scenarios that could
unfold from the Ukraine crisis: a possible repeat of the January
2009 interruption of natural gas supplies from Russia to Europe
via Ukraine, and the less-likely possibility of military
conflict next door to the EU.
They said markets discounting the risk of a gas supply
disruption would mark down euro against the U.S. dollar. Europe
imports around 25 percent of its gas from Russia, although there
are huge variations across countries, JPMorgan said.
"But unless that interruption is sustained for many weeks,
Ukraine does not look like a trend driver of government bonds,
swap spreads or the currency," they said.
However, should the extraordinary event of military conflict
occur, the euro could drop 3 to 5 U.S. cents, they said.