The US dollar suffered a slight loss on Wednesday after investors are becoming less bothered over the risk of a potential Russian invasion of Ukraine, and they rather wait for the publication of the minute from the Federal Reserve’s meeting held in January.
Stock Markets Breath in Relief
Stock markets had a significant rally on Tuesday following Russia’s announcement that it had begun to withdraw some of its troops from the Ukraine border and send them back to their bases after their military drills had been completed. The market sentiment continued throughout the Asian trading session on Wednesday despite the American President, Joe Biden, sounding an alarm that over 150,000 Russian troops still remained in a threatening position.
On the other hand, Ukraine announced that its Defense Ministry’s online network and two major banks in the country were victims of cyber-attacks. It is unclear if this has anything to do with the Russians and potential aggression.
The movements in the money markets on Wednesday were rather of little significance. The dollar index slid by 0.2% at 95.846.
Strategists at ING FX wrote in a note to their clients that the dollar and some other low-yielders may keep having more pressure as a result of increased optimism about a diplomatic solution in the Russia-Ukraine crisis. They added further that taking into consideration the huge impact of the crisis on crude oil, the Canadian dollar and Norwegian krone may continue to struggle before they cash in fully on better political sentiments.
Salvaging a Loss
The long expectation that the Federal Reserve will increase interest rates made way for the US dollar to be able to minimize its losses. Markets are currently pricing in up to 59.5% possibility that there will be a 50 basis point increase when the Federal Reserve holds its next meeting scheduled for March. The market is priced in at just 40.5%, possibility that the interest rate will be increased by just 25 basis points.
The minute from January’s meeting held by the Federal Reserve is expected to be published later on Wednesday. Elsa Lignos, the Global Head of Foreign Exchange Strategy at RBC Capital Market, wrote in a note to clients that there is a wide guess that the minutes will be dovish. Not because they will be dovish in the real sense of the word, but because market expectations right now are so hawkish, it would be difficult to catch up.
Following the recovery of oil prices, the Canadian dollar gained some strength against the US dollar, but Norway’s krone went a notch under.