Dollar Edges Higher, Euro Largely Steady Ahead of ECB Meeting

By Peter Nurse – The U.S. dollar edged higher Thursday, while the euro handed back some of the previous session’s hefty gains ahead of high-level talks between Ukraine and Russia as well as the latest European Central Bank meeting. 

At 2:55 AM ET (0755 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% higher at 98.015.

EUR/USD fell 0.1% to 1.1065, maintaining most of Wednesday’s 1.6% gain, its largest single-day jump higher since June 2016, after the announcement of talks between the foreign ministers of Ukraine and Russia as well as easing oil prices boosted risk sentiment.

Russia’s foreign minister Sergei Lavrov is set to meet with his Ukrainian counterpart Dmytro Kuleba in Turkey later Thursday. This is the first get-together between the two since Russia’s invasion, raising hopes that a ceasefire can be agreed even though Ukraine’s foreign minister warned that his expectations were low.

“Fanning those hopes seem to be comments from President Zelenskiy that Ukraine no longer seeks NATO membership. At the same time, it seems that Russia may no longer be seeking regime change in Kyiv,” said analysts at ING, in a note. “This seems to be building expectations that some kind of deal can be achieved.”

Also helping the euro recover from its recent beating was the sharp selloff in crude prices late Wednesday, with the Brent and WTI contracts both falling over 12%, after indications from a couple of major producers that they could increase supply to attempt to make up for the disruptions caused by the Western sanctions on Russia.

The common currency fell to a 22-month low of 1.0804 earlier in the week, weighed down by the impact of Russia’s invasion of Ukraine, and the associated sanctions, on crude prices, escalating fears of stagflation within Europe.

Also on the agenda, Thursday is the latest meeting of the European Central Bank, with investors looking at how Russia’s invasion of Ukraine will impact monetary policy, given the policymakers had signaled in February an exit strategy to its emergency bond purchases, opening the way for an interest rate hike late this year.

The U.S. will release its consumer price index for February later in the day. This is expected to show another rise, with the annual figure seen reaching 7.9%, up from 7.5% this previous month. 

The Federal Reserve meets next week and is widely expected to hike interest rates by a quarter of a percentage point.

Elsewhere, USD/JPY traded 0.1% higher at 115.94, GBP/USD gained 0.1% to 1.3184, after jumping strongly on Wednesday, while the risk-sensitive AUD/USD climbed 0.3% to 0.7340.

USD/RUB edged 0.4% higher to 120.4700, with the ruble suffering in the wake of the sanctions levied by the West on Russia after its invasion of Ukraine.

Russian officials have taken many measures to shore up its battered economy and safeguard hard currency availability, but the economy is headed for one of its biggest inflation spikes this century, to the likely detriment of its currency.

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