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The U.S. dollar weakened on Thursday, while the euro gained, as optimism grew over a potential resolution to the Russia-Ukraine conflict following discussions between U.S. President Donald Trump and the leaders of both nations.
As of 09:25 GMT, the Dollar Index, which measures the greenback’s performance against a basket of six major currencies, fell 0.2% to 107.590, touching its lowest level since February at 107.49 after briefly reaching 108.52 in the prior session.
Dollar Retreats Amid Prospects of Peace Talks
Late Wednesday, President Trump revealed that he had spoken separately with Russian President Vladimir Putin and Ukrainian President Volodymyr Zelenskyy, with both leaders expressing a willingness to negotiate an end to the ongoing war.
Adding to the momentum, the Kremlin confirmed that Trump and Putin had agreed to meet, with Trump suggesting a potential face-to-face meeting in Saudi Arabia in the near future.
Meanwhile, China has reportedly proposed hosting a summit between Trump and Putin to facilitate peace talks, according to a Wall Street Journal report citing sources familiar with the matter.
This boost in sentiment pressured the safe-haven dollar, which had initially strengthened following hotter-than-expected U.S. consumer price index (CPI) inflation data for January.
The Russian ruble surged, with USD/RUB dropping 3.6% to 90.600, reflecting market optimism over a potential de-escalation of geopolitical tensions.
Analysts at ING noted:
“Under normal circumstances, the stronger-than-expected U.S. inflation data should have bolstered the dollar while pressuring risk assets. However, the market’s attention quickly shifted to headlines about Trump’s 90-minute call with Putin discussing a possible ceasefire in Ukraine.”
Euro Gains as Peace Prospects Improve Economic Outlook
The euro strengthened as news of Washington’s push for peace lifted sentiment across European markets.
- EUR/USD rose 0.3% to 1.0413, reaching a one-week high.
- GBP/USD climbed 0.2% to 1.2479, nearing its highest level in a week, supported by strong U.K. economic data.
Analysts at Barclays observed that the euro remains 10% below its pre-war level, with the conflict having inflated European government deficits and fueled stagflation. Any signs of de-escalation could ease these fiscal pressures and support a more stable economic recovery in the Eurozone.
Additionally, German inflation data released Thursday showed that consumer prices remained stable at 2.8% year-on-year in January, aligning with forecasts.
U.K. Economy Shows Unexpected Growth
The British pound also received support from better-than-expected economic data. The U.K.’s GDP expanded by 0.1% in Q4 2024, narrowly avoiding contraction after a stagnant previous quarter.
On an annual basis, the U.K. economy grew by 1.4%, improving from the 1.0% growth recorded in the prior three months. This resilience in growth provided further support for GBP/USD, which edged up to 1.2479.
Inflation Data in Focus
Later on Thursday, markets will closely watch the latest U.S. producer price index (PPI) data for further inflation insights.
- Economists expect PPI to rise 0.3% month-over-month in January, up from December’s 0.2%.
- The core PPI, excluding food, energy, and trade, is projected to accelerate to 0.3% MoM.
While hopes for peace talks have momentarily softened the dollar, the broader market remains cautious as investors assess inflation trends and Federal Reserve policy signals.
