LONDON (Reuters) – The euro edged lower on Monday after Germany and France said a new round of sanctions targeting Russia were needed amid “very clear clues” of war crimes in Ukraine.
The euro, which has been under pressure due to worries about the economic damage from the war in Ukraine, slipped 0.15% versus the dollar to park at $1.1031 at 0755 GMT, not too far from last month’s almost two-year trough of $1.0806. Against sterling, it fell 0.24% to 84.05 pence, near a six-day low.
French President Emmanuel Macron said on Monday that a new round of sanctions targeting Russia was needed and that there were clear indications Russian forces committed war crimes.
While Russia-Ukraine peace talks dragged on, reports of Russian atrocities led German Defence Minister Christine Lambrecht to say the European Union should talk about ending Russian gas imports.
Russia supplies some 40% of Europe’s gas needs.
Ukraine accused Russian forces of carrying out a “massacre” in the town of Bucha, which was denied by Russia’s defence ministry.
Russia’s chief investigator ordered an official examination of what he called a Ukrainian “provocation”.
“More sanctions of course also mean that the risk of energy disruptions in Europe rises. Because of our own sanctions or because Russia might get completely serious with its counter-sanctions rather than just changing the payment mode for natural gas,” said Ulrich Leuchtmann, Commerzbank Head of FX.
“In my view the risk of significant euro weakness increases,” he said.
The U.S. dollar index, which measures the greenback against a basket of peers including the euro, found support on rising Treasury yields amid expectations of rapid-fire U.S. interest rate hikes. It edged 0.05% up at 98.659.
Data on Friday showed U.S. unemployment hitting a two-year low of 3.6% last month, leading investors to assess the numbers would strengthen the Federal Reserve’s resolve to tackle inflation by lifting rates sharply.
Fed funds futures have priced a near 4/5 chance of a 50 basis point hike next month, while two-year U.S. yields climbed to their highest level since March, 2019.[MKTS/GLOB]
Markets in mainland China were closed for a public holiday, but in offshore trade the yuan was kept under pressure by concerns over lengthening lockdowns in Shanghai, where authorities are seeking to virus test all 26 million residents.
(Reporting by Joice Alves, additional reporting Tom Westbrook, editing by Ed Osmond)
