The yen and the Swiss francs rose against the euro on Friday, helped by safe-haven inflows after a Russian aid convoy crossed into Ukraine without permission from Kiev, rattling investors. The dollar, meanwhile, hovered below its 2014 peak against a basket of major currencies on Friday, as investors stayed cautious ahead of a speech by US Federal Reserve Chair Janet Yellen.
While Yellen's speech will take centre stage later in the session and potentially sway the dollar against most currencies, the conflict in Ukraine grabbed attention in an otherwise quiet European session. The euro fell to the day's low against the yen of 137.32 yen, and was last down 0.3 percent at 137.60. The single currency also shed 0.1 percent against the Swiss franc to trade at 1.2095 francs, not far from a 19-month low of 1.20865 francs struck on August 15.
The euro fell 0.1 percent against the dollar to trade at $1.3264, as investors sold European stocks and sought safety in top-notch German Bunds. The single currency was not far from a 11-month low of $1.3242 struck on Thursday. "The Ukraine headlines saw both the Swiss franc and the yen rise, but gains have been relatively muted," said Alvin Tan, currency strategist at Societe Generale. "The big mover, I guess, will be Yellen's speech later in the day."
The dollar index was steady at 82.194, having risen as high as 82.364 on Thursday, a level last seen in early September. It was still up 0.9 percent so far this week and on track for its best weekly gain since January. Upbeat US housing data and hawkish-sounding Fed minutes have combined to give the dollar a boost. "Some of those who held long dollar positions before have probably taken profits since yesterday," said Lutz Karpowitz, currency strategist at Commerzbank.
He said those who missed the dollar rally are likely to hold off now until there are fresh cues from an annual gathering of central bankers at Jackson Hole, Wyoming, where Yellen will give her speech. The topic of this year's symposium is "Re-Evaluating Labor Market Dynamics". Last month, Yellen stressed there was significant slack in labour markets, prompting markets to push back the timing of the first interest rate hike. A dovish speech from Yellen would counter this week's Fed minutes that showed policymakers debating whether rates should be raised earlier or not.
This week's rally left the dollar on the verge of breaking above its April peak of 104.13 yen, a move that could open up the way to 105.45, set in January, traders said. The dollar eased to 103.65 yen, still not that far from a 4-1/2 month high near 103.97 yen on Thursday. "Anything remotely less dovish than expected from Yellen should lift the dollar, and dollar/yen will be the front-runner there," said Jesper Bargmann, head of trading for Nordea Bank in Singapore.
One factor that could help temper gains in the dollar is the lack of a significant rise in US bond yields, analysts said. The US two-year Treasury yield last stood at around 0.46 percent. While the two-year yield has edged up from a two-month low hit last Friday, it remains below a three-year high of 0.59 percent touched in late July.