LONDON, March 14 —The dollar slipped as European markets opened today, but was still near a five-year high versus Japan’s yen as investors braced for a busy week of major central bank meetings.

After uncertainty about the war in Ukraine prompted a market sell-off on Friday, stock markets rebounded today and commodity prices edged back down. 

Analysts attributed the revival of risk appetite to the fact that Russian and Ukrainian negotiators hinted at progress in peace talks.

Currency markets were also driven by expectation that the US Federal Reserve will raise rates at its meeting this week, which ends on Wednesday.

Investors were pricing in 93 per cent chance of a 25 basis point hike. 

Federal Reserve Chairman Jerome Powell last week flagged multiple interest rate increases this year.

The dollar index rose during Asian trading, coming close to a 22-month high as the rate-sensitive short term US Treasury yields rose, but it then edged lower as European markets opened. 

At 0857 GMT, the dollar index was down 0.1 per cent on the day at 98.886 .

"We know at this point the Fed is hyper focused on inflation so we expect Powell will continue to weigh that challenge over the conflict in the Ukraine,” said Adam Cole, chief currency strategist at RBC, in a note to clients.

The US dollar hit a five-year high against the Japanese yen overnight, at 117.88, as investors bet that the Bank of Japan, which meets on Friday, would maintain its dovish stance despite rising inflationary pressures. Read full story

"USD/JPY continues to press higher driven by both higher US yields and the fallout of the fossil fuel surge on Japan’s trade balance,” wrote ING FX strategists in a note to clients.

At 0900 GMT, the pair had eased to 117.775.

The British pound was still near a 16-month low, flat on the day at US$1.30415, ahead of the Bank of England meeting on Thursday.

The euro was up 0.5 per cent at US$1.0953.

The Australian dollar was down 0.6 per cent , hurt by the easing of commodity prices, while the New Zealand dollar was down 0.2 per cent.

Lockdown measures to limit the spread of Covid-19 in China saw the yuan weaken.

The dollar hit 6.382 versus the offshore yuan, the yuan’s weakest in more than a month.

China has reported more local symptomatic Covid-19 cases so far this year than it recorded in all of 2021, as the highly transmissible Omicron variant triggers outbreaks from Shanghai to Shenzhen. 

"The Chinese yuan has started to feel the weakening pressure due to continuous bad news for the economy,” wrote Commerzbank senior economist Hao Zhou in a client note.

"China is also facing intensifying pressure from the West to clarify its stance on the Ukraine war.” — Reuters