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NEW YORK: The euro jumped on Wednesday amid signs of compromise by Russia and Ukraine in “more realistic” peace talks, while the dollar slid further from almost two-year highs reached over the past week as markets await a likely rate hike by the Federal Reserve.

A stronger euro overshadowed the dollar index that has gained during the war in Ukraine. The Fed is expected to boost its benchmark overnight rate by 25 basis points when it releases a policy statement at 2 p.m. ET (1800 GMT), but the long-expected hike is unlikely to boost the greenback.

“It’s really a story about whether or not that geopolitical premium is going to continue to be reduced,” said Bipan Rai, North America head of FX strategy at CIBC Capital Markets.

“Going into the invasion a 25-beep hike was already priced for March. If the Fed does deliver on that, I wouldn’t expect much of an impetus for the dollar,” Rai said.

Signs of compromise sent relief through global financial markets. The euro gained 0.63% to $1.102, while the dollar index, a measure of its strength against six trading currencies, fell 0.44%.

Moscow said the sides were discussing status for Ukraine similar to that of Austria or Sweden, both members of the European Union that are outside the NATO military alliance.

Ukraine’s chief negotiator said it would give Kyiv binding international security guarantees to prevent future attacks.

The Russian ruble strengthened 4.99% versus the greenback to 108.20 per dollar.

Other European currencies, including the Swedish and Norwegian crowns, found some support from the developments in the talks.

“FX risk sentiment is buoyed by the super rallies in Asia stock markets running into a less negative tone on European geopolitics,” said Neil Jones, head of FX Sales at Mizuho Bank.

The Swedish crown was set for its best week against the single currency since May 2020. It rose 1% to a five-week high of 10.4275 after Riksbank Governor Stefan Ingves said a rate hike may come sooner than 2024, as initially planned, amid surging inflation.

Sterling rose 0.46% to $1.3098, up from Tuesday’s 16-month low of $1.3000. Money markets expect the Bank of England to raise rates by another quarter point on Thursday.

The commodity-linked Norwegian crown rose about 1.0% versus the dollar to 8.903. The Aussie added 0.71% to $0.7249.

The dollar stood at 118.27 yen, little changed from Tuesday when it touched 118.450 yen for the first time since January 2017.

Money markets are fully pricing a Fed interest rate hike later in the day, while the Bank of Japan is expected to leave ultra-loose policy settings in place when it reviews its policy on Friday.

The offshore Chinese yuan fell 0.27% to $6.3634 per dollar.

China’s Xinhua news agency cited Vice Premier Liu He as saying the country will roll out policy steps favourable for its capital markets.

Bitcoin last rose 3.75% to $40,926.54.

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