Dollar Edges Lower As Traders Eye Fed, Russia-Ukraine Talks

The dollar edged lower against a basket of currencies on Monday, but held near a 21-month high hit last week, as investors eyed Russia-Ukraine peace talks, while major central bank meetings this week kept a lid on large moves in foreign exchange.

The dollar index, which measures the greenback against six major peers, was down 0.2% at 98.808, not far from the near two-year high of 99.415 touched a week-ago.

Tentative hopes of progress in peace talks between Ukraine and Russia whetted the appetite for riskier currencies on Monday, though upcoming central bank meetings and another COVID-linked lockdown in China curbed risk-taking.

"We look for the U.S. dollar to remain broadly better supported amid elevated geo-political risks and a hawkish Fed," Shaun Osborne, chief currency strategist at Scotia Bank, said.

The U.S. Federal Reserve is widely expected to raise interest rates at its meeting ending on Wednesday, with investors pricing in a 99% chance of a 25 basis point hike.

Fed Chairman Jerome Powell last week flagged multiple rate hikes this year as the central bank seeks to tamp down surging inflation.

The dollar hit a five-year high against the Japanese yen overnight, at 117.88, on bets that the Bank of Japan, which meets on Friday, would maintain its dovish stance despite rising inflationary pressures. The dollar was last up 0.56% against the yen at 117.94 yen.

The British pound rose 0.12% against the greenback as the Bank of England looks set to lift interest rates to 0.75% on Thursday, its third hike in a row as it seeks to tame a dramatic surge in inflation intensified by the Russia-Ukraine conflict.

The Australian dollar fell 0.6% as commodity prices eased, while the New Zealand dollar was down 0.2%.

The Russian rouble edged up in afternoon trade in Moscow on Monday as Ukraine said it had begun "hard" talks with Russia on a ceasefire, immediate withdrawal of troops and security guarantees.

China's lockdown measures to limit the spread of COVID-19 lifted the dollar to 6.382 versus the offshore yuan, the yuan's weakest in more than a month.

China has reported more local symptomatic COVID-19 cases so far this year than in all of 2021, as the highly transmissible Omicron variant triggers outbreaks from Shanghai to Shenzhen.

Bitcoin was about flat on the day, continuing to struggle to stay above $40,000.