By Tom Westbrook

SINGAPORE (Reuters) – The euro was under pressure on Wednesday as intensifying Russian bombardment of Ukraine’s cities and a surging oil price raised investor concerns about a hit to Europe’s economy and growth.

The common currency briefly fell below support to touch a 21-month low of $1.1090 overnight, before recovering a bit to trade at $1.1131 early in the Asia session.

“The risk is a sustained move below $1.1106 if market participants downgrade the Eurozone economic outlook,” said Commonwealth Bank of Australia (OTC:CMWAY) analyst Kim Mundy. Sterling, which fell 0.7% overnight, was also squeezed at $1.3327.

Russia bombed a TV tower in Ukraine’s capital on Tuesday and rained rockets on the city of Kharkiv. Munitions experts said cluster bombs were also used on Kharkiv.

The safe-haven yen was firm, tracking a risk-averse mood in other markets and was last just above its 50-day moving average at 114.85 per dollar.

Russia’s rouble, hammered to a record low of 117 to the dollar on Tuesday as Western sanctions hit, remained on the cheaper side of 100.

Commodity linked currencies, such as the Australian dollar, fell slightly against a stronger dollar overnight but have held their own as surging prices for oil, gas, coal and grains provided support. [MKTS/GLOB]

The New Zealand dollar hovered at $0.6760 in morning trade and the Australian dollar edged up to $0.7263. The U.S. dollar index held at 97.324.

Chinese traders are scaling back imports of Russian coal as they struggle to secure financing from state banks worried about potential sanctions, pushing prices higher from Australia and other exporters such as Indonesia and South Africa.

“The strength of commodity prices combined with Australia’s much improved current account position suggests that there is good reason to expect AUD/USD to break with its traditional role of a ‘higher risk’ G10 currency,” said Rabobank strategist Jane Foley, who expects it can climb to $0.74 by the end of 2022.

Later in the session, U.S. President Joe Biden delivers his State of the Union address. He will say the West was ready for Russia’s invasion of Ukraine and his administration has a plan to fight inflation, according to speech excerpts.

European inflation data is due at 1000 GMT. A speech at 1600 GMT from the European Central Bank chief economist, Philip Lane, will also be closely watched for insight into policymakers thinking about the economic damage from the Ukraine crisis.

Bank of England policymaker Silvana Tenreyro will speak about the British economic outlook at 1800 GMT.

China’s yuan was steady in offshore trade at 6.3166 per dollar, having weakened a little on Tuesday.

In emerging markets, Eastern Europe’s currencies were smarting from sharp losses overnight. [EMRG/FRX]

Bitcoin, meanwhile, has rebounded from last month’s lows and last held around $44,500, its advance somewhat blunted by the dollar’s strength.

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