February 17, 2022

Dollar near flat as investors weigh Russia-Ukraine talk, U.S. rate hike outlook

[CNBC, Reuters, Getty Images]

The U.S. dollar index was little changed on Thursday as investors weighed comments by U.S. President Joe Biden that war appeared imminent after shelling on the Ukraine front line, while they were reassessing the probability of a 50 basis point hike at the Federal Reserve’s March meeting.

Biden said there was now “every indication” that Russia was planning to go into Ukraine. Ukraine and pro-Russian separatists within Ukraine earlier exchanged fire on Thursday across a frontline that divides them.

Worries about the crisis in Ukraine have kept a bid in the U.S. dollar along with other safe-haven currencies. At the same time, investors were still trying to assess the minutes of the Fed’s January meeting released Wednesday afternoon. The minutes showed policymakers agreed it was time to tighten monetary policy but also that decisions would depend on a meeting-by-meeting analysis of data.

Against a basket of its rivals, the dollar was slightly higher at 95.81 after rising above 96 earlier in the day. It fell to its lowest since Friday in the previous session.

The Russian ruble weakened 1.5% versus the greenback at 76.30 per dollar.

“The market was clearly on edge regarding Ukraine, and we saw some of that volatility on reports of shelling in Ukraine,” said Adam Button, chief currency analyst at ForexLive in Toronto.

But the effect on the market appears to be waning, he said, noting: “The tough talk and warnings are having a diminishing effect, and the market is now waiting to see action or a moving on.” Investors are also still taking in Thursday’s Fed minutes, Button said.

“There was nothing in the minutes to indicate that a 50 basis point hike is coming in March,” he said, so “the market is rethinking the odds of a 50 basis point hike.” “And that’s a negative for the U.S. dollar,” Button said. “The Fed … will want to move gradually, deliberately.” Money markets were pricing in a 72% likelihood of a 50 bps rate hike next month compared to 80% at the start of the week.

The dollar was down 0.4% against the Japanese yen at 115.02, while it was down 0.3% against the Swiss franc. The euro was down 0.1% against the dollar at $1.136.

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