Peter Nurse

Investing.com – The U.S. dollar edged lower Wednesday, while the euro saw some support ahead of this week’s emergency EU summit as well as the latest European Central Bank policy-setting meeting. 

The, which measures the greenback’s performance against six currencies in a basket, was 0.1% less at 98.983 at 2:50 am ET (0750 GMT), just below its recent 22-month high of 99.090.

rose 0.2% to 1.0922, recovering somewhat from Monday’s 22-month low of 1.0806, helped by reports that the European Commission was looking at the potential of a large joint bond issue to finance defense and energy projects in the wake of Russia’s invasion of Ukraine, with an emergency EU summit to be held on Thursday. 

“This follows last year’s initiative that included joint debt to fund a 1.8 trillion euro (~$2 trillion) emergency package. The details were still being worked out, but the prospect seemed to be helping support the euro today and narrowing the spreads between core and peripheral bonds,” said Marc Chandler, Chief Market Strategist at Bannockburn Global Forex.

However, on Thursday the European Central Bank meets. Given the possibility that rising commodity prices could slow growth in Europe, policymakers may delay raising rates until later in the year. 

This contrasts with the likely decision of the Federal Reserve when it meets next week, with Chairman Jerome Powell backing a quarter-point rate increase while telling Congress last week he would move more aggressively later if inflation didn’t abate.

Due to greater dependency on Moscow, the U.S. decided to prohibit Russian oil imports from Tuesday night.

“Along with the geographical vicinity and different correlation with risk sentiment, the disorderly rise in energy prices is what is generating a big divergence between the dollar (the U.S. is largely energy-independent) and most European currencies (the region is largely dependent on Russian oil and gas),” said analysts at ING, in a note. “This looks unlikely to change soon.” 

Elsewhere, traded 0.2% higher at 115.84, gained 0.1% to 1.3119, near a 16-month low, while climbed 0.4% to 0.7294, helped by Reserve Bank of Australia Governor Philip Lowe stating that an interest rate hike this year is “plausible.”

The offshore market prior to foreign currency trading resumes in Moscow Wednesday, indicated a 11% increase at 117.3550.

Russia’s rating was downgraded to C by Fitch Ratings late Tuesday, with the rating agency saying that a bond default is “imminent” as a result of measures ushered in since the war in Ukraine.