Dollar firms as Ukraine peace push and Fed expectations guide markets

The US dollar gained ground against its major peers on Tuesday, as traders digested the outcome of a White House summit on Ukraine and braced for key signals from the Federal Reserve later this week. According to Reuters, the dollar index inched up 0.1 per cent to 98.19 after US President Donald Trump assured Ukraine’s Volodymyr Zelenskiy that Washington would provide security guarantees in any peace settlement with Russia. The pledge followed a high-level meeting in Washington with European allies, where discussions centred on ending the nearly three-year-long conflict.

Markets eye Ukraine deal impact

Market analysts noted that geopolitical uncertainty was driving investors towards the greenback. “The dollar is the safe haven of choice when geopolitical risks are increasing,” Bart Wakabayashi, Tokyo branch manager at State Street, was quoted as saying by Reuters.

If a peace deal materialises with European nations taking on a bigger role, currency flows could further strengthen the dollar while putting pressure on the euro and pound. The euro hovered at $1.1656, down 0.04 per cent in Asian trading, stuck in the middle of its recent range. Sterling also slipped back to $1.3501, nearing the lower end of its past week’s trading band.

Thin trading and Fed spotlight

With many investors away for summer holidays, trading volumes remained thin. But attention is now shifting to the Federal Reserve’s annual Jackson Hole symposium later this week, where Fed Chair Jerome Powell is expected to provide crucial guidance on the US economic outlook and future interest rate trajectory.

Independent analyst Tina Teng told Reuters that investors remained cautious, with Wall Street equities trading near record highs and risk sentiment still guiding flows.

Asian markets and safe-haven flows

The dollar edged 0.1 per cent lower against the yen, trading at 147.77, after weak demand at a Japanese government bond auction nudged long-term yields higher. Japanese equities pared early gains, with the Nikkei 225 retreating from record highs.

Meanwhile, commodity-linked currencies showed mixed moves. The Australian dollar eased to $0.6489 despite upbeat consumer sentiment data, while the New Zealand dollar was flat at $0.5924 after earlier gains. The Hong Kong dollar stood out, strengthening 0.3 per cent to 7.7944 per US dollar as local interbank rates jumped to a three-month high.

Crypto bucks the trend

Cryptocurrencies were the outliers in Tuesday’s session. Bitcoin fell 1.3 per cent, extending a three-day slide after hitting record highs last week. Ether dropped 2.9 per cent, unable to breach its recent peak.

For now, investors are weighing two forces: the geopolitical risk premium tied to Ukraine and the policy direction from the Fed. Both factors are expected to keep the dollar in demand in the near term, according to Reuters.

(With inputs from the agencies)