Euro-Dollar Boosted by Ukraine Ceasefire Hopes

U.S. Secretary of Defence Pete Hegseth addresses media in Brussels on Feb. 13 on efforts to establish a peace accord between Ukraine and Russia.

Hopes that an end to the war in Ukraine looms have boosted the Euro.

European assets are in demand on indications the U.S. and Russia are close to agreeing to an end to the war in Ukraine.

The Euro-to-Dollar exchange rate extended its recovery to 1.0413 after U.S. President Donald Trump indicated confidence Russia's Vladimir Putin was ready to enter meaningful negotiations.

Financial markets don't seem concerned that Ukraine and Europe are being effectively sidelined from the process, and further gains for the Euro are likely if the upcoming Munich Security Conference yields more evidence of progress.

"The broad EUR generally outperformed in G10. High expectations for Friday's Munich Security Conference, particularly regarding Ukraine-Russia ceasefire possibilities with Trump and Putin agreeing to initiate talks on ending the war, may have contributed to EUR support," says Jesper Fjärstedt, Senior Analyst at Danske Bank.

The conference will be attended by Vice President JD Vance, Keith Kellogg, the U.S. special envoy for Ukraine and Russia, and Pete Hegseth, the Secretary of Defence.

Dominic Bunning, FX strategist at Nomura, says a ceasefire between Russia and Ukraine poses a real risk to the Dollar's dominance.

"There are clear risks to USD from any potential movement towards a ceasefire. We would flag three potential channels for this to play out: (i) lower energy prices, coupled with (ii) lower yields, leading to (iii) improved macro sentiment towards Europe," says Bunning.

Above: Euro-Dollar is carving out a base following a multi-month selloff.

The Euro's gains also defy an above-consensus U.S. inflation reading that landed on Wednesday. Inflation rose right across the board and pushed the odds of the next Federal Reserve right cut into December.

However, for the Dollar's rally, the 'hawkish' repricing in Fed rates appears to be captured by the law of diminishing returns, as have tariffs.

The Dollar strengthened through the second half of 2025, with gains accelerating on Donald Trump's win in the November election, with markets judging his desire to impose a wide range of tariffs on trading partners would boost the appeal of the Greenback.

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However, since taking power, Trump's tariff approach has proven more nuanced, and this has sucked momentum from the Dollar.

"While tariff headlines remain a notable driver of FX price action, it seems markets increasingly view them as a negotiation tactic, with a fading impact," says Fjärstedt. "Our bias remains that Trump will ultimately underdeliver on tariffs, though further announcements are likely in the coming months."

Looking ahead, Danske Bank's strategists expect Euro-Dollar to trade slightly higher on a tactical basis.