Traders stayed optimistic for an end to the war in Ukraine as talks continued

• The U.S. dollar headed for its first down week in six versus major peers today
• Investors continued to assess the impact of the start of the Fed's rate tightening cycle this week
• Sentiment also improved after Russia avoided default on dollar-denominated debt

Forex market

The U.S dollar fell yesterday and hit its lowest in a week as investors digested the Federal Reserve's monetary policy outlook a day after the U.S central bank's expected rate hike, while the euro rose as investors kept an eye on Russia-Ukraine talks. 

The Fed's monetary policy turned hawkish with its quarter-percentage-point rate increase Wednesday and projection that the federal funds rate would reach a range of 1.75% to 2% by the end of 2022 and 2.8% next year, but the central bank did not deliver a tougher surprise that some investors might have been expecting. 

Economic Calendar

The strongest message yesterday was that the Fed was going to hike and it was primarily concerned with elevated inflation pressures. The market is kind of taking the bet that the Fed has this view now but that could shift in the coming quarters, and there's a lot already priced into the short-term interest rate markets for the Fed this year. Some of that is being pulled back, and that's one of the reasons why the dollar has come under pressure. 

The dollar index, which measures the greenback's strength against six trading currencies, was down 0.5% at 97.980 and hit its lowest in a week. The index remains up 2.4% for the year so far. The euro was up 0.5% at $1.1095 and touched its highest since early March. 

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Officials from both sides of the Ukraine-Russia conflict met again for peace talks, but they said their positions remained far apart. The Russian rouble rose in Moscow trading and was slightly weaker offshore. On foreign exchanges, rouble bids were indicated at 96 per dollar and traded at 104, down 3.9%. The commodity-sensitive Australian dollar was up 1.2% against the U.S dollar. Oil prices climbed 8% yesterday with a renewed focus on supply shortages in the coming weeks due to sanctions on Russia. 

The euro rose against the British pound and hit its highest since early February. The Bank of England raised interest rates as expected, but softened its language on the need for further increases. Money markets are pricing less than 120 bps of rate hikes by year-end. The dollar was down 0.1% against the Japanese yen. Earlier yesterday, the Bank of Japan Governor said Japan's inflation was unlikely to hit a central bank target of 2%, even accounting for rising energy costs, making the case for keeping monetary policy ultra-easy.

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Euro-EUR 

The single currency was up 0.5% and touched its highest since early March. Officials from both sides of the Ukraine-Russia conflict met again for peace talks, but they said their positions remained far apart. The euro rose against the British pound and hit its highest since early February. The Bank of England raised interest rates as expected. Overall, the EUR/USD traded with a low of 1.1006 and a high of 1.1136 before closing the day around 1.1089 in the New York session.

Yen-JPY

The Japanese Yen steadied as the U.S dollar headed for its first down week in six today, languishing near a one-week low, as investors continued to assess the impact of the start of the Federal Reserve's rate tightening cycle this week. Traders stayed optimistic for an end to the war in Ukraine as talks continued between Moscow and Kyiv. Overall, the USD/JPY traded with a low of 118.34 and a high of 119.00 before closing the day around 118.57 in the U.S session.

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British Pound-GBP 

The British Pound dropped yesterday after the Bank of England raised interest rates but sounded less certain about the pace of further tightening to combat soaring inflation. Sterling had gained before the BoE announced its Monetary Policy Committee had voted 8-1 to raise rates 25 basis points to 0.75%. The lone dissenter voted to keep rates on hold. Overall, the GBP/USD traded with a low of 1.3085 and a high of 1.3209 before closing the day at 1.3146 in the New York session.

Canadian Dollar-CAD 

The Canadian Dollar strengthened against its U.S counterpart yesterday as falling measures of currency market volatility showed that investors were growing more confident holding riskier, commodity-linked currencies rather than the greenback. Canadian dollar 3-month implied volatility has declined to 7.175% from 8.15% earlier this month. Overall, USD/CAD traded with a low of 1.2610 and a high of 1.2696 before closing the day at 1.2625 in the New York session.

Australian Dollar-AUD

The Australian Dollar in two days propelled more than 2.7% towards the 0.7400 area. First, Beijing announced that it will implement measures to boost the country's economic growth. A stable and healthy expansion in China benefits Australia, considering the strong trade relationship between the two nations. The strength of the Australian labor market has also supported AUD/USD. Overall, AUD/USD traded with a low of 0.7138 and a high of 0.7235 before closing the day at 0.7231 in the New York session.

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Euro-Yen EUR/JPY

EUR/JPY is trading below 14, 50 and 100 days moving average. Fast stochastic is giving a bearish tone and MACD is also issuing a bearish stance. The Relative Strength Index is above 40 and lies below the neutral zone. In general, the pair has gained 0.38%.

Sterling-Yen GBP/JPY

Currently, GBP/JPY is trading below 14, 50 and 100 days moving average. Fast stochastic is issuing a bearish tone and MACD is also indicating a bearish stance. The Relative Strength Index is above 42 reading and lies below the neutral zone. On the whole, the pair has lost 0.12%.

Aussie-Yen AUD/JPY

Currently, the cross is trading above 14, 50 and below 100 days moving average. Fast stochastic is giving a bearish tone and MACD is also indicating a bearish stance. The Relative Strength Index is above 54 reading and lies above the neutral region. In general, the pair has gained 1.06%.

Euro-Sterling EUR/GBP

This cross is currently trading above 14, 50 and below 100 days moving average. Fast stochastic is indicating a bullish tone and MACD is also issuing a bullish signal. The Relative Strength Index is above 46 and lies below the neutral region. Overall, the pair has gained 0.51%.

Sterling-Swiss GBP/CHF

This cross is trading below 14, 50 and 100 days moving average. Fast stochastic is issuing a bearish stance and MACD is also indicating a bearish tone. The Relative Strength Index is above 40 and lies below the neutral region. In general, the pair has lost 0.41%.

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