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Dollar stabilises as traders reassess risks from Poland

Trading in the dollar and the euro was volatile on Tuesday, with both currencies trading below their session highs as investors tried to interpret the significance of the missile that struck Polish territory. However, the U.S. dollar’s early gains fizzled as traders took comfort from U.S. President Joe Biden’s remarks that the missile may not have been fired from Russia.

NATO-member Poland and Ukraine say the blast that killed two in a town close to their border was caused by a Russian-made rocket, raising concerns of an escalation in the war. President Biden said the weapon was probably not fired by Russia, although the investigation was ongoing.

According to U.S. officials, initial findings suggested that the missile that hit Poland had been fired by Ukrainian forces at an incoming Russian missile, the Associated Press said.

Russia denies it was responsible for the explosion.

“The market is trying to size up the risk and what that really means,” said Moh Siong Sim, currency strategist at Bank of Singapore. “Is that something that is going to lead to further tension, or perhaps this is something that will deescalate over the next few days.”

“Right now, it’s a bit of a tussle in the market as to how to price this risk,” he added.

Biden was speaking after global leaders held an emergency meeting on Wednesday following the deadly explosions that Ukraine and Polish authorities said were caused by Russian-made missiles.

Turbulent trading during the Asian session saw major currencies swing between gains and losses, with the U.S. dollar index, which measures the greenback against six peers and weights the euro most heavily, rising as much as 0.31 percent to 106.76 before last trading 0.05 percent lower at 106.38.

EUR was up 0.127 percent at USD 1.0377, having slipped 0.18 percent earlier. The currency saw similar moves overnight.

GBP was last trading at USD 1.1875, up 0.06 percent after reversing its losses from earlier in the day.

The Japanese yen was about 0.3 percent weaker at 139.75 per USD, influenced by a rise in U.S. long-term Treasury yields during Tokyo trading as haven demand eased. Bond yields move inversely to prices.

Risk-sensitive Antipodean currencies recovered from earlier declines with the Australian dollar last up 0.19 percent at USD 0.67685, while the New Zealand’s kiwi was flat at USD 0.6158.

“The currency market is stabilising, toying with the notion that this … doesn’t necessarily imply an escalation in the war, with NATO needing to get involved,” said Rodrigo Catril, a senior currency strategist at National Australia Bank.

Resiliency in the Aussie and New Zealand dollars despite the swings in risk sentiment shows “there is a lot of appetite to push the U.S. dollar lower,” Catril said.

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