Risk rally takes a breather ahead of Russia-Ukraine talks, ECB announcements

The positive shift witnessed in risk mood weighed heavily on the greenback Wednesday and helped risk-sensitive assets recover sharply. The dollar is holding its ground against its major rivals early Thursday and markets turn cautious while awaiting headlines from Russian Foreign Minister Sergei Lavrov and his Ukrainian counterpart Dmytro Kuleba’s meeting. Later in the session, the European Central Bank (ECB) will announce its policy decisions and February Consumer Price Index (CPI) data will be featured in the US economic docket.

Bloomberg reported on Wednesday that the Ukrainian President’s Deputy Chief Of Staff Zhovkva said that Ukraine was ready for a diplomatic solution while adding that there have to be security guarantees. Additionally, Ukrainian President Volodymyr Velenskyy told the German newspaper Bild that the aim of Thursday’s talks was to end the war and noted that Ukraine was prepared to make certain compromises if Russia were to make compromises too. On a negative note, Russia’s state-run RIA media outlet said that Russia would not concede anything at the next round of peace talks with Ukraine.

Reflecting the risk-on market environment, the S&P 500 gained more than 2% on Wednesday and the benchmark 10-year US Treasury bond yield rose 4%. Finally, the barrel of West Texas Intermediate (WTI) lost 12% before settling between $108 and $109 early Thursday. In the meantime, US stock index futures are posting small losses heading into the European session.

The US Dollar Index, which fell 1.1% on Wednesday, moves sideways near 98.00. The annual CPI in the US is expected to rise to a fresh multi-decade high of 7.9% in February from 7.5% in January.

EUR/USD stays relatively quiet around 1.1050 after gaining nearly 200 pips on Wednesday. The ECB is widely expected to keep its policy settings unchanged but market participants will pay close attention to the revised growth and inflation projections. ECB President Christine Lagarde’s comments on the policy outlook amidst the Russia-Ukraine crisis could trigger a significant market reaction as well.

GBP/USD staged a decisive rebound on Wednesday but lost its bullish momentum before testing 1.3200.

Gold erased all the gains it recorded on Tuesday in the second half of the day on Wednesday in a dramatic turnaround. XAU/USD stays on the back foot early Thursday and trades below $1,990.

Despite the broad-based selling pressure surrounding the greenback, USD/JPY climbed above 116.00 fueled by the rising US T-bond yields.

Bitcoin gained 8% and climbed above $42,000 before erasing the majority of its gains during the Asian trading hours on Thursday. BTC/USD was last seen trading below $40,000 losing 6% so far on the day. Ethereum stays under bearish pressure and trades deep in negative territory near $2,600 after posting gains in the previous two days.

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