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Dollar gains on tensions in Russia, Ukraine

Posted by Joseph Trevisani on Feb 26, 2014 2:48:00 PM

NEW YORK Wed Feb 26, 2014 11:32am EST

A money changer inspects U.S. dollar bills at a currency exchange in Manila January 15, 2014. REUTERS-Romeo Ranoco

A money changer inspects U.S. dollar bills at a currency exchange in Manila January 15, 2014.

Credit: Reuters/Romeo Ranoco

(Reuters) - The dollar rose to its highest in two weeks against a basket of major currencies on Wednesday, as investors sought the greenback's safety on continued geopolitical tensions in Russia and Ukraine.

President Vladimir Putin put Russian combat troops on high alert for war games near Ukraine on Wednesday, the Kremlin's most powerful gesture yet after days of saber rattling since its ally Viktor Yanukovich was toppled as president in Kiev.

"Tensions between Russia and Ukraine are creating a safe-haven play into the dollar," said Joseph Trevisani, chief market strategist at WorldWideMarkets.

In late morning trading, the dollar index .DXY rose 0.39 percent to 80.457. It hit a high of 80.490, it strongest level since mid February.

The dollar also rose against the euro, which was down 0.54 percent at $1.3672 after hitting a two week-trough of $1.3584.

The greenback extended gains versus the euro after data showing sales of new U.S. single-family homes surged to a 5-1/2-year high in January, easing concerns of a sharp slowdown in the housing market.

Against the yen, the dollar was up 0.09 percent at 102.30.

The dollar also gained on expectations Federal Reserve chair Janet Yellen will reassure traders that the central bank will not pause tapering its bond-buying program in testimony before the Senate Banking Committee on Thursday.

The dollar, meanwhile, traded mostly flat against the yuan after the Chinese currency slid in recent days. It was last at 6.1248 yuan, compared with levels closer to 6.0600 just a week ago

Analysts said the decline was engineered by the People's Bank of China to help soften a slowdown in the Chinese economy, with signs this week of a cooling of property prices.

Spot yuan has entered a dramatic weakening cycle in recent weeks, guided downward by a series of weak fixings by the central bank, with additional momentum added to the slide by the unwinding of yuan positions by Chinese banks.

Many market watchers see the move as a prelude to a widening of the yuan's trading band and believe the currency's longer-term uptrend remains intact, despite recent data showing the world's second-biggest economy is losing steam.

"Chinese macro economic risk is a factor capping the dollar against the yen," said Shusuke Yamada, chief Japan currency strategist at Merrill Lynch Japan Securities.

"Macro economic risks from the U.S., China and Japan have grown significantly. That said, such risks are unlikely to fully materialize until key data releases in April, and the dollar is likely to be range bound until then," Yamada said.

(Additional reporting by Laurence Fletcher and Joshua Franklin in London; Editing by Susan Fenton and Chris Reese


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