SINGAPORE - The euro rose to a three-week high versus the dollar as reports of Ukraine retaking territory from Russia boosted sentiment while a European Central Bank (ECB) policymaker said further interest rate hikes will be needed to curb inflation.
The common currency jumped as much as 1.2 per cent following reports Ukraine's forces had exploited a collapse in Russian defences in the region of Kharkiv, raising hopes the tide may turn in a war that has caused an energy crisis and rampant price increases in Europe.
The euro has now advanced about 2 per cent from its September low of 98.64 US cents (S$1.38) to trade at US$1.0063 on Monday.
Meanwhile, Bundesbank president Joachim Nagel, a member of the ECB's rate-setting Governing Council, said further clear steps like last week's rate increase must follow if the inflation picture stays the same.
"Significant territory gains by Ukraine forces over the weekend is potentially good news, assuming Ukraine can push Russia further away and end the war on its own terms," said Mr Rodrigo Catril, a currency strategist at National Australia Bank in Sydney.
"An imminent end to the war seems like a long shot, but good news for now."
The shared currency is still down more than 11 per cent this year as the energy crisis saps the region's growth outlook. JPMorgan Chase and Saxo Bank both predict the euro will weaken to the 95 US cent-level by year-end.
"The working assumption for most is that the war will end when Russia decides it will end," which is still some time away, Mr Jason Wong, senior markets strategist at Bank of New Zealand in Wellington, wrote in a research note.
"But a tail risk now could well be that the war ends on Ukraine's terms, which would be a significant game-changer for financial markets." BLOOMBERG