By Peter Nurse
Investing.com – The US dollar lost ground at the start of trading in Europe on Monday, as sentiment in risky assets was supported by news of a likely meeting between US President Joe Biden and Russian President Vladimir Putin to discuss the tense situation on the border with Ukraine.
At 8:45 AM ET, the , which tracks this coin against a basket of six other major currencies, was down 0.3% at 95.745.
News of the possible summit comes from the office of French President Emmanuel Macron, who had pitched the idea to both leaders. The White House said in a statement that Biden had agreed to the meeting “in principle” but only “if no invasion occurs,” while the Kremlin has remained silent on the matter.
The dollar was one of the main beneficiaries last week of heightened tensions on the Ukrainian border, as Russia massed troops and also held military exercises in neighboring Belarus, while Ukrainian forces and Russian-backed rebels traded accusations of violence in the east of the country.
The pair is up 0.5% to the 1.1373 level, as the euro has been buoyed by the possibility of diplomacy winning the game. The pair was down 0.1% at 114.96, reversing early gains, while the risk-sensitive index was up 0.6% at 0.7217.
The Russian ruble, very sensitive to the prospects of war, gains ground, falling 0.9% to the level of 76.6073.
“Geopolitics has taken center stage and created concerns for investors and people around the world,” analysts at Nordea (ST:) say in a note. “The crisis between Russia and Ukraine persists and unfortunately we are far from sure that geopolitical risks have peaked.”
On the other hand, they rose 2.2% in the month of January and 25% in the year as a whole, which indicates the inflationary pressures to which the European Central Bank officials were subjected when they signaled a change towards a more aggressive monetary policy.
Figures for February will be released later this day and will be closely watched to see how this important sector, one of the main regional engines of growth, is coping with the Omicron variant situation and associated supply difficulties.
On the other hand, the US market will remain closed this Monday for the President’s Day national holiday, but the expectation of aggressive moves by the Federal Reserve to combat consumer inflation, which has reached 40-year highs, continues to provide dollar support.
With this in mind, the price index, the Fed’s favorite measure of inflation, due out on Friday, has raised eyebrows. It is expected to have risen 6% year-on-year in January, while the general reading, which excludes food and fuel prices, is expected to have risen 5.2%.
In addition, several Fed officials will appear throughout the week, including Richmond Fed President Tom Barkin, San Francisco Fed President Mary Daly, Cleveland Fed President Loretta Mester, and Governor of the Fed, Christopher Waller.
“Looking ahead, we do not expect the current crisis [de Ucrania] be the main driver of risk sentiment this year. Central banks and inflation forecasts are much more likely to determine the course of financial markets,” adds Nordea. “However, countries and companies closely linked to Russia could face negative spillover effects and the Russian ruble remains vulnerable”.