Dollar Falls Amid Hopes for a Russia-Ukraine Ceasefire
Despite shocking U.S. inflation data, the dollar weakened against all G10 currencies. The main reason for this decline is reduced demand for safe-haven assets following positive signals about a possible resolution of the Russia-Ukraine conflict.
Geopolitics Outweigh Inflation Concerns
According to the U.S. Department of Labor, consumer prices rose by 3% in January compared to the same period last year. This is the highest level since June 2024, with inflation accelerating for the fourth consecutive month.
Typically, such data strengthens expectations of a hawkish Federal Reserve policy, which supports the dollar. However, this time, geopolitical developments have overshadowed macroeconomic concerns.
Currency and Stock Market Movements
— The U.S. Dollar Index (DXY) dropped 0.46%, reaching a weekly low of 107.51.
— The euro rose 0.5%, reaching $1.0435.
— The Polish zloty gained 0.6%, while the Hungarian forint strengthened by 0.8%, hitting its highest level since November.
— The offshore yuan rose 0.4%, driven by investor optimism.
— European stock futures also moved higher.
Trump-Putin Talks: A Shift in U.S. Policy?
Markets reacted positively to a phone conversation between Donald Trump and Vladimir Putin, during which both leaders agreed to initiate negotiations on ending the conflict.
Additionally, U.S. Treasury Secretary Scott Bessent presented an economic partnership plan to Ukrainian President Volodymyr Zelensky—another sign of potential diplomatic progress.
According to Rodrigo Catril, a senior currency strategist at National Australia Bank, expectations of a ceasefire have boosted demand for the euro and other risk assets.
With a possible political shift underway, the dollar may remain under pressure, especially if the Federal Reserve struggles to bring inflation back to target levels.
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