THE euro dropped on Friday (Feb 28), after a meeting between Ukrainian President Volodymyr Zelensky and US President Donald Trump went up in flames, dashing hopes any peace deal could be reached soon in the war with Russia.
Trump and Zelensky traded verbal barbs during a meeting that was designed to help Ukraine convince the US to not side with Russian President Vladimir Putin, who ordered the invasion of Ukraine three years ago.
Zelensky left the White House early following the meeting, without signing a deal between Ukraine and the US over the joint development of natural resources.
“A big driving force of markets now is uncertainty on a lot of different levels, and this is just another part of that,” said Jack Mcintyre, portfolio manager at Brandywine Global in Philadelphia. “It looked like we were moving towards progress on a peace deal or a ceasefire between Russia and Ukraine and maybe now that gets to come on hold, so you have to price in a little bit more uncertainty.”
The euro slumped after the meeting and was last down 0.29 per cent at US$1.0367 after dropping to US$1.0359, its lowest since Feb 12. After falling for several months from a more than one-year high hit in September, the single currency has shown signs of stabilising, partly on hopes a peace deal could be reached.
The US dollar initially edged lower on Friday after a reading on inflation was largely as anticipated by investors while consumer spending unexpectedly fell.
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The Personal Consumption Expenditures (PCE) price index increased 0.3 per cent in January, in line with expectations of economists polled by Reuters, after advancing by an unrevised 0.3 per cent in December. In the 12 months through January, prices rose 2.5 per cent after increasing 2.6 per cent in December.
But consumer spending, which accounts for more than two-thirds of US economic activity, dropped 0.2 per cent last month after an upwardly revised 0.8 per cent increase in December.
“I have a suspicion that this is idiosyncratic on the spending side in January. At the same time, I wouldn’t be surprised if we get real weakness in February and March in view of the decline in consumer confidence,” said Thierry Wizman, global FX and rates strategist at Macquarie in New York.
The dollar index, which measures the greenback against a basket of currencies, rose 0.23 per cent to 107.61.
For the week, the dollar is up about 0.9 per cent but down 0.8 per cent for February, poised for its largest monthly decline since September.
Expectations the Federal Reserve will cut rates by at least 25 basis points (bps) at its June meeting edged up after the data, with markets pricing in a 79.1per cent chance of a cut, up from nearly 70 per cent in the prior session, according to CME’s FedWatch Tool.
Fed officials have recently indicated they expect the central bank to hold rates steady until there is more clarity surrounding the impact of tariffs on inflation and a slowing economy.
Earlier this week, the greenback had fallen nearly 4 per cent from a more than two-year high in January on renewed worries about US economic growth and inflation as Trump shifted tariff deadlines on Canada and Mexico.
Investors are also bracing for the labour market impact from actions by the Department of Government Efficiency (DOGE) under Elon Musk.
On Thursday, Trump said his proposed tariffs of 25 per cent on Mexican and Canadian goods would take effect on Mar 4, along with an extra 10 per cent duty on Chinese imports, after some confusion earlier in the week as to whether they would be held off until April.
The Canadian dollar weakened 0.14 per cent versus the greenback to C$1.45 while the Mexican peso was down 0.3 per cent versus the dollar at 20.557.
Canada’s gross domestic product in the fourth quarter expanded by 2.6 per cent on an annualised basis, surpassing widespread expectations for growth of 1.8 per cent, as a jump in consumer spending, business investments and exports lifted growth.
Against the Japanese yen, the dollar strengthened 0.53 per cent to 150.59 but has fallen nearly 3 per cent for the month as investors largely expect the Bank of Japan to hike interest rates this year.
Sterling weakened 0.23 per cent to US$1.2568. REUTERS
