February 14, 2022: The dollar and safe-haven currencies held gains and riskier ones struggled for traction on Monday, with traders on edge about the prospect of war in Europe and unsettled by soaring inflation.
The risk of war in Ukraine has seen the euro retreat to $1.1360 from last week's top of $1.1495.
The Australian and New Zealand dollars were also pinned below last week's levels and the Russian rouble was smarting after suffering its sharpest fall in nearly two years on Friday.
The safe-haven yen has climbed to 115.50 yen from a five-week low of 116.34 last week.
Russia could invade Ukraine at any time and might create a surprise pretext for an attack, the United States said on Sunday. German Chancellor Olaf Scholz, who heads to Kyiv on Monday and Moscow for talks with President Vladimir Putin on Tuesday, warned of sanctions if Moscow did invade.
The flashpoint adds to stress already evident in markets' volatile response to hotter-than-expected U.S. inflation data last week, and although concern about an emergency rate hike has subsided analysts expect the dollar to stay supported.
“With Fed hike expectations surging again and geopolitical tensions in Ukraine escalating dramatically the dollar index should be back on the front foot again,” said analysts at Westpac.
The dollar index was steady at 95.937 early in the Asia session. Analysts see the euro, which dropped 1.2% on the yen on Friday, and oil importers' currencies as most at risk from conflict in Ukraine. Oil prices have surged.
Later on Monday, European Central Bank President Christine Lagarde addresses European Parliament and St Louis Fed President James Bullard, who roiled markets with hawkish comments in the wake of last week's inflation data, appears on CNBC.
Sterling held at $1.3567 on Monday as investors are convinced the Bank of England is hiking rates next month and pricing about a 40% chance of a 50 basis point rise.
The New Zealand dollar eased 0.1% to $0.6645 and the Australian dollar hovered at $0.7140.
Australian jobs data is due on Thursday and the risk of surprise has driven Aussie dollar volatility gauges to nearly one-year highs.
The U.S. Federal Reserve releases its January meeting minutes on Wednesday.
Last week's chatter about an inter-meeting hike was tamped down when the Fed released an unchanged bond buying schedule for the coming month since the central bank has said it would only hike after its buying had ceased.