Peter Nurse

Investing.com: The U.S. Dollar edged lower on Tuesday due to the Russia/Ukraine Conflict generating safe haven flows, and traders still considering the possibility of aggressive Federal Reserve rate increases. 

The Dollar Index (which tracks the greenback in relation to a basket six currencies) traded 0.1% lower at 96.220 ET, after reaching a high of two weeks on Monday.

The dollar is slightly weaker, but this comes after sharp gains in the past few sessions due to tensions at the Ukraine border. On Monday, the United States warned that Russia might soon invade, and Secretary of State Antony Blinken said that the U.S. Embassy would be moved from Kyiv, to Lviv. He cited the “dramatic acceleration of the buildup Russian forces”.

“For now, it looks like markets are holding on to a mostly sanguine stance, even though Friday’s price action showed a shift to defensive trades,” said analysts at ING, in a note,

After touching 1.1278 on the previous day, it rose 0.2%, to 1.1324. It was its lowest point in more than a week. Risk-sensitive dropped 0.1% to 0.71118. While falling 0.2% at 115.30 after briefly reaching 114.99 Monday (also a one-week high), it fell 0.2%.

Earlier Tuesday, data showed that expanded an annualised 5.4% in October-December, below expectations for a 5.8% gain, after contracting a revised 2.7% in the previous quarter.

Aside from the Ukraine conflict, traders are trying to gauge the Fed’s intentions when it next meets in March in terms of interest rate hikes.

On Monday, the President of St. Louis Federal Reserve reiterated his appeal to the U.S. Central Bank to act decisively. He cited four strong inflation reports consecutively.

Last week’s stronger-than-expected U.S. report, in particular, has raised expectations that the Fed might raise rates by a full 50 basis points in March.

“While we doubt the Fed will deliver half-point increases, ongoing market speculation in that direction can offer some support to the dollar, and 96.00 could represent a floor for DXY this week,” added ING.

Also, it rose 0.1%, to 1.3534 after U.K. employment data were released. The British’s three-month average was 4.1%. However, the number for January dropped almost 32,000. This suggests that the labour market may be recovering from Omicron.