* Canadian dollar firms ahead of BoC rate decision
* Yuan near four-year high as Beijing tolerates more
* Bitcoin stabilizes near $37,000 after dip to six-month low
TOKYO, Jan 26 (Reuters) - The euro hovered near 1-month lows
versus the dollar and yen on Wednesday, hurt by concerns about
the potential for military conflict in Ukraine and ahead of the
Federal Reserve wrapping a meeting that could herald accelerated
Bank of Canada is also set to announce policy later in the
day, and the Canadian dollar saw some of the biggest action in
Asian trade, strengthening 0.21% as traders fretted over the
outcome with chances of a rate hike seen finely balanced.
The euro slipped 0.07% to $1.12945 after hitting
$1.12640 overnight for the first time since Dec. 21. It was
little changed at 128.69 yen, after touching 128.25
in the previous session, also a first since Dec. 21.
Western leaders stepped up preparations for any Russian
military action in Ukraine while Moscow said it was watching
with great concern after 8,500 U.S. troops were put on alert to
deploy to Europe in the event of an escalation.
Most of the market's angst was, however, focused on the Fed
as traders awaited clues to the timing and pace of U.S. interest
rate hikes, as well as how the central bank will go about
slimming down its almost $9 trillion balance sheet, a process
dubbed quantitative tightening (QT).
"Market sentiment remains fragile," said TD Securities
strategists, noting that any hints 'around the starting point
for QT or 'sooner' and 'faster' on hikes could be
But they added that they didn't expect definitive signals
and the result could be mixed messages.
Money markets are currently priced for a first hike in
March, followed by three more quarter-point increases by
The dollar index, which measures the currency against
six major peers, edged 0.06% higher to 96.030, after climbing to
96.273 on Tuesday, its strongest level since Jan. 7. It has
rallied as much as 1.74% from a two-month low touched on Jan.
"I think the Fed will acknowledge that a March hike is
likely, and then key is if they'll indicate a faster pace of
hikes and also an earlier end to tapering than they've signalled
so far," said Shinichiro Kadota, senior FX strategist at
Barclays. "If it turns out to be more hawkish then obviously the
dollar will benefit."
On the simmering tensions around Ukraine, he said: "until
that is solved, there should be demand for safe haven
currencies, so I think the yen should remain bid."
Elsewhere, sterling was little changed at $1.3503
after dipping to $1.3436 overnight, its lowest in more than
In addition to jitters over Ukraine and the Fed, sterling is
contending with political uncertainty at home, with Prime
Minister Boris Johnson under investigation for possible COVID-19
lockdown breaches. The findings of an internal inquiry could be
announced as soon as Wednesday, according to media reports.
The Canadian dollar strengthened to CAD$1.26075 per
greenback, recovering from a drop to CAD$1.2702 at the start of
the week, its weakest level since Jan. 7.
"There is a huge amount of uncertainty around the January
Bank of Canada rate announcement, as policymakers attempt to
balance very strong realized data on employment and inflation
from Q4 versus the sharp increase in COVID infections and
subsequent lockdowns in late December and January," TD
Securities analysts wrote.
"Ultimately, we think it makes more sense for the BoC to
The risk-sensitive Australian dollar was little
changed at $0.71555, consolidating after sliding to a one-month
low of $0.70905 on Monday.
The Reserve Bank of Australia meets next week, and traders
are anxious to see if blowout inflation numbers released Tuesday
will force Governor Philip Lowe to backtrack on his previous
insistence that rate hikes this year are extremely unlikely.
Australian stock and bond markets are shut on Wednesday for
The yuan touched a near four-year high against the dollar as
Chinese authorities appeared to be taking a more tolerant of
view of the currency's strength, at least for now.
Prior to the market opening, the People's Bank of China set
the midpoint at 6.3246 yuan per dollar, the firmest
since April 2018. Onshore spot yuan strengthened to a
high of 6.3201, also the strongest since April 2018.
In cryptocurrencies, bitcoin firmed to around
$37,200. That's after it hit a low of $32,950.72 at the start of
the week - a level seen for the first time since July. It has
halved in value from its all-time peak at $69,000 in November.
(Reporting by Kevin Buckland; editing by Richard Pullin and