Euro pauses rally but holds steady as traders eye Ukraine tensions By

© Reuters. FILE PHOTO: A picture illustration of U.S. dollar, Swiss Franc, British pound and Euro bank notes, taken in Warsaw January 26, 2011. REUTERS/Kacper Pempel

By Alun John

HONG KONG (Reuters) – The euro’s rally from the previous day petered out in Asia on Wednesday, though it held its overnight gains, as optimism after reports that some Russian forces had moved away from the Ukraine border, was tempered by news of a cyber attack.

Also putting a floor under the dollar were long-standing expectations that the Federal Reserve will begin a fairly aggressive programme of interest rate hikes in its March meeting.

The Russian defence ministry on Tuesday published footage to demonstrate it was returning some troops to base after exercises, however, U.S. President Joe Biden later said the United States had not verified the move.

In addition, hours after Moscow’s announcement, Ukraine said the online networks of its defence ministry and two banks were overwhelmed by a cyber attack.

The euro was marginally softer at $1.1347 having jumped 0.45% the day before.

Shares around the world rebounded following the report of the withdrawal, and Asian equities followed suit; MSCI’s broadest index of Asia Pacific shares outside Japan rose 1% on Wednesday. [MKTS/GLOB]

The Australian dollar, typically seen as sensitive to risk sentiment, echoed the euro, rising 0.37% on Tuesday before steadying, and was little changed on Wednesday at $0.7155.

By contrast, the safe haven yen softened slightly and was last at 115.67 per dollar, having briefly touched 114.99 on Monday, when tensions were higher.

Overall, the which measures the greenback against six major peers, steadied after Tuesday’s losses and was at 96.03.

The greenback “shed ground overnight as the Ukraine geopolitical risk premium came out of markets, but expectations of an aggressive Fed hike cycle should keep a base for the (dollar index) in place,” said analysts at Westpac in a morning note to clients.

The Fed is poised to raise interest rates at its March meeting, likely kicking off a fairly swift programme of hikes, also supporting U.S. benchmark bond yields.

The yield on was last 2.0329%, back near its two year high after dipping below 2% this week as tensions rose.

The dollar and U.S. rates could move later in the day after minutes of the Fed’s February policy meeting are released. Investors are looking to see whether the possibility of a 50 basis point rate hike was discussed.

This week, Fed officials have been publicly sparring over how aggressively to begin raising rates at their March meeting, with St. Louis Fed President James Bullard on Monday reiterating calls for a faster pace of Fed rate hikes.

Other Fed officials have been less willing to commit to a half-point hike, or were even concerned it could cause trouble.

Rate hikes are also supporting the British pound, which was at $1.3543.

Nearly two-thirds of respondents to a Reuters poll of economists, expect the Bank…