Euro Rises to 1-1/2-Week High Against Weakening Dollar Amid Ukraine Peace Talks and Fed Uncertainty

The euro reached a fresh 1-1/2-week high against the weakening U.S. dollar on Thursday, as investors closely monitored Ukraine peace talks and prepared for the Bank of England’s policy meeting later in the session.

The U.S. dollar remained under pressure, with growing concerns over partisanship infiltrating key U.S. institutions. The focus also shifted toward economic data, particularly the release of initial U.S. jobless claims, following last week’s disappointing nonfarm payrolls report. This prompted a dovish repricing of the Federal Reserve’s easing path, contributing to the dollar’s decline.

Euro Strengthens Amid Positive Sentiment from Peace Talks

The euro rose by 0.14%, trading at $1.1677, marking its highest level since July 28. The movement came as market participants saw the ongoing peace talks between Ukraine and Russia as a positive development for the region. Ukrainian President Volodymyr Zelenskiy announced plans to engage in talks with Germany, France, and Italy on Thursday to discuss progress toward a potential peace agreement, boosting investor sentiment toward the euro.

Focus Shifts to Bank of England’s Policy Meeting

Sterling remained steady as investors awaited the Bank of England’s policy announcement. The market widely expects another rate cut, with attention now turning to the central bank’s guidance on the easing path. Markets will be closely watching the expected three-way voting split for any signs that the BoE may alter its approach to the “gradual and careful” easing strategy.

Swiss Franc Rises Amid U.S. Trade Tensions

The Swiss franc also saw a modest rise, gaining 0.20% to 0.8047 against the dollar. This came despite Swiss President Karin Keller-Sutter returning from Washington empty-handed after a trip aimed at averting a 39% tariff on Swiss exports to the U.S.

U.S. Dollar Under Pressure Amid Political Concerns

The U.S. dollar index, which tracks the greenback against a basket of major currencies, dropped to a fresh 1-1/2-week low of 98.00, reflecting a 0.20% decline on the day. The dollar’s weakness was compounded by growing concerns about U.S. political instability, following President Donald Trump’s firing of the official responsible for labor data he deemed unfavorable. Trump’s focus is now on nominating a replacement for outgoing Fed Governor Adriana Kugler and selecting potential candidates for the next Federal Reserve Chair.

Market Expectations for Fed Rate Cut Soar

Fed funds futures are now pricing in a 94% probability of a 25-basis-point rate cut at the Federal Reserve’s September meeting, up from just 48% a week ago, according to the CME Group’s FedWatch Tool. In total, traders expect 60.5 basis points in cuts for the remainder of the year.

The dollar’s weakness, along with expectations for further rate cuts, is adding to market uncertainty as the U.S. grapples with trade tensions, political turbulence, and slowing economic indicators.

As traders await President Trump’s decision on his Fed Chair nominee and the future direction of U.S. monetary policy, the currency market is likely to remain volatile.