The euro has slipped to new lows against the dollar on reports that Russia expelled

NATO's

representative in Moscow. European equity markets, which began the session firmer in the wake of Wall Street's advance Thursday, reversed course and are seeing moderate losses.

With the weekend here, bringing with it the uncertainty of closed markets, many players have flocked into the dollar. But other currencies that have in the past provided a safe haven, like the Swiss franc, are not doing so this time. Nor is gold, which is off a full percentage point today. The next level of support for the beleaguered euro comes in near $1.07.

Up until today, the foreign-exchange market had responded little to the hostilities. But moves in Russia and some cracks in the Western alliance have spooked traders.

Earlier this week,

Yeltsin

recalled Russia's representative from NATO headquarters in Brussels to protest the bombing raids. Russia has also indicated it will send Yugoslavia humanitarian aid. Although some fear that Russia may covertly send military assistance to Yugoslavia, this seems unlikely. Rumors of Russian troop movements have made the rounds in the financial markets, though there has been no confirmation. Thus far Russia's moves are largely symbolic, and confined to diplomatic protests. Military assistance would raise the stakes and jeopardize Russia's already vulnerable standing in the international financial community, including with the

International Monetary Fund.

Remember, this is Russia, not the Soviet Union.

Russia is trying to take its case to the

U.N. Security Council

. The military strikes are being conducted under the auspices of NATO rather than those of the U.N. (as in the Iraqi "war") because the U.N. wouldn't sanction the operation. Russia and China, which have veto power in the Security Council, would have blocked such a mandate. Part of the diplomatic problem is that the independence of Kosovo had been recognized prematurely by some Western powers, which made matters stickier, just as Western recognition of Taiwan's independence from China would antagonize China.

Russia was never keen on the use of force against Yugoslavia, but a more serious problem is the cracks that are appearing in the alliance itself. Italy and Greece appear to be advocating a resumption of negotiations. While the Italian and Greek arguments will not carry the day, they are important insofar as they reflect the lack of cohesion within NATO. Recall that in justifying the use of military force,

President Clinton

cited the threat to NATO cohesion given the potentially diverging interests of NATO members Greece and Turkey.

While no one seriously believes Yugoslavia can defeat NATO forces, many fear that before Yugoslavia sues for peace, it will seek to achieve its domestic objectives, including its "ethnic cleansing" -- a euphemism for killing or otherwise removing ethnic minorities. Some press reports indicate that Serbian police have already begun rounding up ethnic Albanian leaders. Previously, the Serbs inflicted their ethnic cleansing on Bosnia and Croatia.

Marc Chandler is an independent global markets strategist who writes daily for TheStreet.com. At the time of publication, he held no positions in the currencies or instruments discussed in this column, though positions may change at any time. While he cannot provide investment advice or recommendations, he invites you to comment on his column at

commentarymail@thestreet.com.