The US dollar fell on Thursday and hit its lowest level in a week as investors digested the outlook for the Federal Reserve's monetary policy a day after the US central bank's expected interest rate hike, while the euro rose as investors watched Russia.

The Fed's monetary policy turned hawkish with a quarter-point rate hike on Wednesday and a projection that the federal funds rate will hit a range of 1.75% to 2% by the end of 2022 and 2.8% next year.

But the central bank did not deliver the harsher surprise some investors might have hoped for. Yesterday's strongest message was that the Fed is going to hike and that was mainly related to rising inflationary pressures.

Markets are somewhat betting that the Fed has this view right now but that could change in the coming quarters, and there's a lot already factored into the short-term interest rate market for the Fed this year.

Some of these are being pulled back, and that's one of the reasons why the dollar is under pressure. The dollar index, which measures the greenback's strength against a basket of six trading currencies, was down 0.5% at 97.980 and hit its lowest level in a week.

The Dollar Had Risen Which Then Back Weakened

The index remains up 2.4% for the year so far. The euro was up 0.5% at $1.1095 and touched its highest level since early March. Officials from both sides of the Ukraine-Russia conflict are meeting again for peace talks, but they say their positions remain distant.

The euro rose against the British pound and hit its highest level since early February. The Bank of England raised interest rates as expected but softened its language about the need for further hikes.

The dollar was down 0.1% against the Japanese yen. Earlier, Bank of Japan Governor Haruhiko Kuroda said Japan's inflation is unlikely to reach the central bank's 2% target, even considering rising energy costs, making the case for keeping the monetary policy in check very easy.

On Tuesday, the pound sterling against the US dollar was briefly pressured down to 1.3020 during the Asian morning trading hours, but in entering the US trading hours, it managed to climb back up to almost the same position around the price of 1.3050.

Comments from Oleksiy Arestovych, Advisor to Ukrainian President Volodymyr Zelenskyy, on Tuesday had said that the end of the military conflict war with Russia is likely to occur in May. This has managed to trigger a very risk-on sentiment at first.

This opinion has also received support from US senator Marco Rubio who said that the Russian side has no morals at all and the energy to seize the Kyiv region at this time which shows that a much faster resolution of the geopolitical crisis could be possible.

Return Of Risk Appetite Weighs on The US Dollar

The return of interest in the multiplicity of risks weighed heavily on the safe-haven US dollar, which pushed the GBP/USD currency pair back up to its position on Monday.

However, the pound sterling against the US dollar seems to be having some difficulties gathering further bullish momentum. The report for employment data from the UK came out quite mixed but did not bring much influence on price movements.

The Claimant Count Change has come in at –48.1 compared to what was expected at –31.9 and the previous actual was around –25, however, the unemployment rate for the last three months to January fell to 3.9% from 4.1% previously.

For the GBP/USD pair, the closest “Support” area is waiting at the 1.3000 points which if it succeeds in a breakout or is passed will continue to the 1.2950 area and then continue towards 1.2920.

Meanwhile, the closest “Resistance” area can wait in the 1.3100 area which if it breaks out or is passed will continue to the 1.3150 price point and then continue towards 1.3200.