Euro mired down while Ukraine war weighs on growth By Reuters

© Reuters. FILE PHOTO: A shop cash register is seen with both Sterling and Euro currency in the till at the border town of Pettigo, Ireland October 14, 2016. REUTERS/Clodagh Kilcoyne

By Tom Westbrook

SINGAPORE (Reuters) - The euro was pinned near a 22-month low on Tuesday as war in Ukraine darkens Europe's economic outlook, while commodity currencies took a breather in their weeks-long rally.

The euro attempted a bounce in Asia, after six straight sessions of selling, but at $1.0859, it was not carried terribly far from Monday's trough of $1.0806.

The common currency is down 4% on the dollar since Russia launched what it calls a "special military operation" in Ukraine where fighting is showing no signs of abating.

It flirted with parity on the Swiss franc on Monday for the first time in seven years and traders are bracing for a bumpy ride ahead, with euro/dollar volatility gauges at their highest since the market chaos of March 2020.

Russia-Ukraine Peace talks have made scant progress and though Germany's opposition to a ban on Russian energy imports knocked oil futures from Monday's 14-year peak, analysts expect the supply shock to persist and hurt growth.

"Barring a clear improvement in the geopolitical conflict, the playbook for the pair should be to sell on rallies," said Terence Wu, a strategist at Singapore's OCBC Bank.

"In this case, expect selling pressure to pick up above 1.0900. Further downside cannot be ruled out, with the European Central Bank (ECB) decision on Thursday unlikely to provide sustained relief."

The ECB meets on Thursday with the spectre of stagflation prompting economists to figure that policymakers might delay rate hikes until late in the year.

Sterling, which had been battered along with the euro was also parked near the 16-month low it struck on Monday, last buying $1.3121.

The yen dipped slightly to 115.44 per dollar with surging oil import costs pushing Japan to its biggest current account deficit since 2014 in January.

Besides commodities' parabolic rally, the conflict and subsequent Western sanctions have crushed Russian assets, with the rouble sliding to a record low of 160 to the dollar in erratic offshore trade on Monday.

Commodities and exporters' currencies paused for breath on Tuesday, with the Australian and New Zealand dollars giving up early gains in Asia to retreat further from Monday's four-month peaks. Traders are starting to fret that in the longer run sky-high commodity prices become a drag on world growth.

The Aussie was last at $0.7290, about a cent-and-a-half underneath Monday's high. The kiwi bought $0.6847.

Elsewhere in Asia the clobbering continued for South Korea's won which made a new 21-month low. India's rupee scraped from Monday's record trough, as did currencies in Eastern Europe.

Cryptocurrencies kept in recent ranges with bitcoin steady at $38,342.

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