The euro rose today on hopes of progress in peace talks between Russia and Ukraine, while the U.S. dollar fell ahead of the Federal Reserve policy meeting.
“We believe that Russia has effectively run out of fresh troops to keep fighting,” said one of Ukrainian President Volodymyr Zelenskiy’s top aides. He also said the war would be over by May and could even end within weeks.
Brent Oil futures dropped to their lowest in almost three weeks as Russia indicated it is in favor of the Iran nuclear deal resuming as soon as possible, while ceasefire talks over Ukraine further eased fears of supply disruptions. The drop in oil price reflects the hope that the talks between the Russian and Ukrainian negotiators might lead to an imminent and peaceful solution after all.
The Euro was up 0.5% to 1.1019 against the dollar (EURUSD). The single currency lost ground briefly after a survey showed on Tuesday German investor sentiment suffered a record slide in March, due to the war in Ukraine and economic sanctions on Russia, making a recession in Europe’s largest economy more and more likely. Some analysts also flagged that a negative correlation between oil prices and the single currency increased recently.
The euro zone is far more dependent than other areas on Russian energy. However, the euro today is mainly driven by sentiment around the Russia-Ukraine conflict. It was also perceived that markets’ approach to peace talks was very optimistic.
The U.S. Federal Reserve is set to raise rates for the first time since the COVID-19 pandemic at its meeting which concludes on Wednesday, with traders looking for indications about the pace of future monetary tightening. The U.S. dollar index, which measures the greenback’s value against other major currencies, fell 0.3% to 98.828. (DXY). This also directly reflected in benefit of the Euro’s value.
The dollar is at pretty high levels. We would need a hawkish surprise from the Fed to see a further rise, but the bar is quite high for that. It will be difficult for the dollar to stage any meaningful rally after the Fed policy meeting.
