Dollar rally loses steam on ceasefire hopes

The dollar continued to gather strength against its rivals and the US Dollar Index (DXY) reached its highest level since June 2020 in the American trading hours on Wednesday. Reports of Russian negotiators looking to discuss a ceasefire with Ukraine, however, triggered a relief rally and forced the greenback to lose interest. Delegations are expected to meet on Thursday and the market mood remains cautiously optimistic. Later in the day, January PPI from the euro area, the European Central Bank’s Monetary Policy Meeting Accounts, the weekly Initial Jobless Claims and ISM Services PMI from the US will be featured in the economic docket. FOMC Chairman Jerome Powell will testify before the Senate Banking Committee.

On the first day of his semi-annual testimony, Powell confirmed that a 25 basis points rate hike in March would be appropriate. Powell voiced his concerns over the inflation outlook and noted that there wouldn’t be any direct effects on the US economy from Russian sanctions. “We think we need to engage in a series of rate increases and let our balance sheet shrink,” the chairman added.

Meanwhile, Russian aggression continued early Thursday with Russian forces reportedly taking control of the city of Kherson. Furthermore, an official from the Donetsk separatist group said that pro-Russian forces may launch targeted strikes on Mariupol unless Ukrainian forces surrender, per Interfax news agency.

The DXY is moving sideways near 97.50 early Thursday, the 10-year US Treasury bond yield, which rose nearly 10% on Wednesday, is down 1.5% at 1.85% and US stock index futures trade flat. The barrel of West Texas Intermediate is up 25% since the beginning of the week and it’s trading at its highest level since November 2008 above $114.

EUR/USD seems to have steadied around 1.1100 in the early European session on Thursday. The data from the euro area showed on Wednesday that annual inflation jumped to 5.8% in February from 5.1% in January.

USD/CAD is trading at its lowest level since late January near 1.2600. As expected, the Bank of Canada raised its policy rate by 25 basis points on Wednesday and noted that it will need to continue to hike the policy rate in the upcoming meetings.

GBP/USD reversed its direction after falling below 1.3300 on Wednesday and ended up closing the day in the positive territory. The pair is trading in a relatively tight range near 1.3400 early Thursday.

After rising toward $1,950 mid-week, gold fell sharply in the second half of the day on Wednesday and lost more than 1% pressured by the surging US T-bond yields. XAU/USD is moving sideways above $1,920 in the European morning.

Bitcoin rose above $45,000 on Wednesday but struggled to preserve its bullish momentum. BTC/USD is down 1% on the day at $43,500 heading into the European session. Ethereum closed in the red on Wednesday after testing $3,000 and continues to inch lower toward $2,900 on Thursday.

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