Euro, Hong Kong dollar, U.S. dollar, Japanese yen, pound and Chinese 100 yuan banknotes are seen in this illustration, January 21, 2016. REUTERS/Jason Lee

NEW YORK, March 30 (Reuters) – (March 30 article, corrects to add word deleted from company name in 13th paragraph)

The dollar fell to a near two-week low on Wednesday as optimism over peace talks between Russia and Ukraine faded and investors’ attention turned to economic data and interest rate expectations.

The dollar index, which measures the greenback against a basket of six peer currencies, was down 0.57% at 97.861 at 2:20 p.m. Eastern Daylight Time, after hitting its lowest level. since March 17.

Much of that weakness was due to the strength of the euro, which rallied on Tuesday after Russia pledged in peace talks to scale back its attacks on kyiv.

The change in tone in the Russian-Ukrainian peace talks suggested “the conflict could shift to a more localized phase with some of the most extreme tail risk scenarios reducing in likelihood,” JPMorgan analysts said in a note on Wednesday. to clients who recommended buying EUR/USD.

The United States, however, warned that it had not seen “signs of real seriousness” from Russia, whose forces continued Wednesday to bombard the outskirts of kyiv and a besieged northern city. Ukraine. Read more

As optimism about the Moscow-kyiv talks faded, inflation reports stoked expectations that rising costs, accelerated by Russia’s invasion of Ukraine, would force Europe to raise its rates sooner rather than later, supporting the euro.

“The euro was appreciating slightly ahead of the inflation readings for March, but received an additional boost when they arrived,” said Derek Holt, head of financial markets economics, Scotiabank Economics.

Preliminary data showed German annual inflation hit its highest level in more than 40 years in March as prices for natural gas and petroleum products soared. Spanish CPI flash data for March showed prices rising at their fastest since May 1985. read more

However, ECB President Christine Lagarde said food and energy prices should stop rising, helping the eurozone avoid the combination of stagnant growth and high inflation. feared by economists. Read more

The euro was at its highest level against the greenback since March 1, and its last rise of 0.6% at 1.1152. .

In addition to its safe-haven status, the dollar has strengthened this year on investor expectations that the US Federal Reserve, which raised rates by 25 basis points at its March 16 meeting, will be more hawkish than the European Central Bank.

In Europe, data and warnings from policymakers highlighted slowing growth, plummeting confidence and soaring inflation as Europe’s economy feels the impact of war in Ukraine. . Read more

“Investors who think how far the ECB should go and even a change in sentiment and a change in policy will definitely send the euro higher, only because of expectations and speculative demand for the currency,” said Ivan Asensio , Head of Currency Risk Advisory at Bank of Silicon Valley.

Elsewhere, the yen recovered further from its seven-year low on Monday, after a meeting between Bank of Japan (BOJ) Governor Haruhiko Kuroda and Prime Minister Fumio Kishida added to speculation over the level of official discomfort with the decline of the yen.

The yen rose 0.83% against the dollar to 121.85.

Reporting by John McCrank in New York; Editing by Kirsten Donovan, Barbara Lewis and Jonathan Oatis

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