The US dollar witnessed a significant decline at the start of the trading week, with its index dropping by 0.3%, influenced by political discussions led by Europe to find a diplomatic solution to the Ukraine crisis. This decline followed last week’s gains of 0.7%, but the intervention of European leaders in drafting a peace plan contributed to redirecting liquidity flows towards other currencies, particularly the euro.
The euro benefited from the prevailing positive sentiment, as the EUR/USD pair rose by 0.2%, surpassing its recent lows. Upcoming eurozone inflation data, expected to be released soon, will play a key role in shaping the European Central Bank’s (ECB) policy direction. The ECB is anticipated to cut interest rates by 25 basis points this week to stimulate an economy that has been in stagnation.
The British pound also saw a slight increase against the dollar. However, the Bank of England’s (BoE) monetary policy remains a focal point, especially with the upcoming questioning session of BoE Governor Andrew Bailey, which could provide insights into future policy directions. In this context, strong economic performance in Q4 2024, along with recent inflation data, may push the BoE to adopt a more hawkish stance on interest rates.
In Asian markets, the Japanese yen gained against the dollar, with the USD/JPY pair falling by 0.4% following the release of stronger-than-expected manufacturing PMI data, despite the sector remaining in contraction.
