The US greenback unerect, returning several its robust gains from the previous day, as investors gauged the most recent spherical of sanctions against Russia and US country inflation knowledge is seen as unlikely to form the Fed too aggressive at its next policy meeting.
The greenback on Thursday posted its biggest one-day percentage gain since Nov. 10 to hit 97.74, its highest since June 30, 2020. However, it returned some gains after US President Joe Biden hit Russia with a wave of sanctions following the country's policies
Invasion of Ukraine but refrained from imposing sanctions on Russian President Vladimir Putin and cutting off Russia from the SWIFT international banking system.
US economic data showed consumer spending increased more than expected in January even as price pressures mounted, with annual inflation hitting levels last seen four decades ago.
Although the personal consumption spending price index increased 0.6% in January after rising 0.5% in December. Revised revenue and expenditure data show the economy is very resilient to Omicron and high oil prices.
Russia-Ukraine Tensions and US Inflation
Hopefully, the situation with Russia is short-lived, but even if oil prices remain high, the economy should have sufficient fundamental strength to tolerate high energy prices, said Brian Jacobsen.
The inflation figure isn't huge, but at least the month-on-month inflation rate isn't moving higher, Jacobsen said. That would take the wind from under the wing of the most hawkish Fed member. The dollar index was down 0.459%, with the euro up 0.59% to $1.1257.
Even with Friday's pullback, the dollar is still on track for a third straight week of gains. The improvement in risk appetite was evident in US stock markets, with the S&P 500 up more than 2% after rallying late in the session on Thursday.
Before Thursday's spike — which sent the dollar to its highest since June 30, 2020 — the greenback had weakened in recent weeks, as rising tensions in Ukraine fueled expectations the Fed may be less aggressive in policy tightening as it tries to rein in inflation.
Expectations for at least a 50-basis point rate hike at the March meeting have fallen to 25% from about 34% a day ago, according to the CME FedWatch Tool.
In the central bank's latest monetary policy report to Congress, the Fed warned inflation could last longer than anticipated if labor shortages and rising wages persist.
Russia-Ukraine Tensions and US Inflation
Investors see only a 4% chance the ECB will increase its benchmark interest rate by 10 basis points at its March 10 policy meeting. The Russian ruble rose 1.67% versus the greenback to 83.04 per dollar after hitting a record low of 89.986 the day before.
The Japanese yen was down 0.09% versus the greenback at 115.65 per dollar, while the Sterling was last trading at $1.34, up 0.19% on the day.
The US dollar weakened against other currencies as investors continued to reassess the situation surrounding Russia's invasion of Ukraine on Thursday, as well as further Western sanctions against Russia.
In the biggest attack on a European country since World War Two, Russia launched an assault on Ukraine on Thursday. Tens of thousands of individuals have fled their homes and Ukrainian troops area unit fighting on numerous fronts.
The US responded by imposing sanctions on Russia, impeding Russia's access to foreign currency in addition to sanctions on state-owned banks and companies.
Ukrainian President Volodymyr Zelenskiy promised on Friday to stay in the capital Kyiv. Ukrainian troops continue to fight the Russian invasion, the biggest offensive in a European country since World War Two.
Meanwhile, US President Joe Biden imposed more sanctions on Russia aimed at hampering Russia's ability to do business in its major currency. The US has imposed sanctions on Russian banks and state-owned companies.
