LONDON, Feb 21 (Reuters) - The euro rallied and the dollar retreated on Monday as investors pulled capital away from safe havens after U.S. President Joe Biden and Russian President Vladimir Putin agreed in principle to meet to discuss the crisis in Ukraine.
The euro rose 0.5% to $1.1376 after losing some ground in early trade while the dollar index shed 0.4% against major currencies.
"The price action reflects a combination of relief that Russia did not invade the Ukraine over the weekend (...) and the announcement that Presidents Biden and Putin have accepted in principle a French proposal for a diplomatic summit", wrote Lee Hardman, a currency analyst at MUFG.
Hopes that the crisis might be moving towards de-escalation was being felt through most financial asset classes, and European stock markets opened in positive territory.
The risk-friendly Australian dollar gained 0.6% to $0.7218 and sterling ticked up 0.24% to $1.3630.
By contrast, safe-have currencies which have benefited from the tensions spurred by Russia's military build-up on Ukraine's borders were on the defensive.
The Swiss franc lost 0.2% against the euro while Japan's yen gave up most of its early gains to trade at 114.93 per dollar.
While the outcome of negotiations to find a peaceful way out of the Ukrainian crisis remains uncertain, more volatility is expected ahead.
"The market is likely to keep chasing headlines without any clarity on the eventual outcome," analysts at Barclays cautioned in a note.
Currency markets participants are also focused on central bank policy, seeking clues on the speed and size of interest rate hikes in major markets.
Investors will be closely watching remarks from U.S. Federal Reserve policy makers this week for any hint that an expected rate hike at the Fed's March meeting could veer more towards to 50 basis points instead of the current consensus for a 25 basis point increase.
Public remarks are also due from several BOE policy makers.
Bitcoin BTC=BTSP> recovered a little from a mild bruising over the weekend. The world's largest cryptocurrency was up 2.3% and trading above $39,000. Early on Monday it touched a two-week low of $38,210.
Reporting by Julien Ponthus and Alun John Editing by Stephen Coates, Edwina Gibbs, Peter Graff