The dollar made a firm start to the week as Treasury yields rose with expectations of rapid-fire U.S. interest rate hikes, while talk of Europe banning Russian gas kept a lid on the euro.

The euro has been weighed down by worries about economic damage from war in Ukraine and was parked at $1.1047, not too far from last month’s almost two-year trough of $1.0806.

Germany said on Sunday that the West would agree to impose more sanctions on Russia in the coming days after Ukraine accused Russian forces of war crimes.

There seems to be momentum for at least discussing an embargo on energy imports, which would likely come with price pain since Russia supplies some 40% of Europe’s gas needs.

“Negative news on the war or a further lift in energy prices could see EUR/USD test $1.0800,” Commonwealth Bank of Australia analysts said in a note.

German Defence Minister Christine Lambrecht said the European Union should talk about ending Russian gas imports and Italy’s Foreign Minister Luigi Di Maio did not exclude a debate on the issue occurring in the next few hours.

Ukraine accused Russian forces of carrying out a “massacre” in the town of Bucha, which was denied by Russia’s defence ministry. Reuters saw corpses strewn across the town.

Other moves in the Asia session were also slight and the momentum that had lifted commodity currencies seems to have ebbed with commodity prices as higher yields help the dollar.

The U.S. dollar index was steady around 98.587.

Markets in mainland China were closed for a public holiday, but in offshore trade the yuan was kept under pressure by concerns over lengthening lockdowns in Shanghai, where authorities are seeking to virus test all 26 million residents.

FAST FED

Data on Friday showed U.S. unemployment hitting a two-year low of 3.6% last month, strong enough that investors bet it would strengthen the Federal Reserve’s resolve to tackle inflation by lifting rates sharply.

Fed funds futures have priced a near 4/5 chance of a 50 basis point hike next month and two-year yields are within a whisker of 2.5% [MKTS/GLOB]

The yen, which steadied last week after a pummelling through March on the expectation of higher U.S. interest rates against anchored Japanese yields, has been squeezed back below 122 per dollar and last traded at 122.59.

“The yen is not out of the woods,” said Jane Foley, a senior strategist at Rabobank in London.

“Another prolonged bout of severe selling pressure on the yen could put pressure on the Bank of Japan to re-think its (policy). We forecast further upside for dollar/yen towards the 125 level in the latter half of the year.”

The Australian dollar was last broadly steady at $0.7510 ahead of a Reserve Bank of Australia (RBA) meeting on Tuesday and the kiwi rose slightly to $0.6935.

“The RBA is expected to lean closer towards the hawkish market expectations, and hints otherwise could be construed as a AUD-negative, and see the pair retrace towards $0.7400,” said Terence Wu, strategist at Singapore’s OCBC Bank.