U.S. dollar banknotes are displayed in this illustration taken, February 14, 2022.
U.S. dollar banknotes are displayed in this illustration taken, February 14, 2022. Reuters / DADO RUVIC

The euro fell on Wednesday to its lowest level in one month against a strengthening dollar as the prospect of new Western sanctions on Russia added pressure to the European currency.

The euro was 0.15% lower versus the dollar at $1.08900 at 0800 GMT, after briefly touching a nearly one-month low of $1.08735.

The United States and its allies prepared new sanctions on Moscow over civilian killings which President Volodymyr Zelenskiy described as "war crimes", as heavy fighting and Russian airstrikes pounded the besieged port of Mariupol.

"A new round of sanctions against Russia are expected to be announced today by the U.S. and the EU, with any implications for energy exports likely to keep the euro under pressure," ING FX strategists Francesco Pesole and Chris Turner told clients.

French eurosceptic, far-right candidate Marine Le Pen closing in on President Macron in the polls ahead of this month's presidential elections "adds another threat to the euro", the ING strategists added.

The dollar index, which measures the greenback against six peers, rose 0.12% to 99.600, after touching its highest since May 2020 of 99.759.

The index had gained 0.5% on Tuesday after Fed Governor Lael Brainard, typically seen as a more dovish policymaker, said she expected a combination of interest rate increases and a rapid balance sheet runoff to bring U.S. monetary policy to a "more neutral position" later this year, with further tightening to follow as needed.

The U.S. 2-year yield was at its highest level since January 2019, the 5-year yield at its highest since December 2018, and the benchmark 10-year yield rose to its highest since March 2019. [US/]

The Fed will release later in the day minutes of its March meeting that are expected to provide fresh details on its plans to reduce its bond holdings.

"What now matters is what the Fed does in May... and what signals it sends out regarding interest rates this year - several hikes of more than 25bp (basis points)?" said Antje Praefcke, FX Analyst at Commerzbank.

She added that as market have already priced in interest rate hikes, a confirmation of these expectations will likely have only a "marginally positive effect on the dollar".

Sterling was flat versus the dollar at $1.30690, after touching a three-week low against the greenback. [GBP/]

Bitcoin was 0.4% softer at $45,305.