By Peter Nurse

- The U.S. dollar edged lower Friday, with risk sentiment boosted by the news that the U.S. and Russia were set to discuss the Ukraine crisis next week, raising hopes for a diplomatic solution. 

At 2:50 AM ET (0750 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% lower at 95.740.

Russian Foreign Minister Sergei Lavrov agreed to meet U.S. Secretary of State Antony Blinken for talks in Europe next week, the State Department said Thursday night.

The dollar, along with other safe-haven currencies the yen and the Swiss franc, have gained this week amid high tension on the Ukrainian border, with U.S. President Joe Biden warning on Thursday that the probability of an invasion of Ukraine is still “very high.”

News that the two principal players are set to meet next week has been greeted with a degree of optimism, although the situation remains very tense, especially after both Ukrainian government forces and Moscow-backed rebels accused each other of breaking cease-fire rules on Thursday.

EUR/USD rose 0.1% to 1.1372, USD/JPY rose 0.2% to 115.11, having touched a two-week low of 114.78 in early Friday trading, while the risk sensitive AUD/USD climbed 0.4% to 0.7214.

The Russian ruble, which has been sensitive to the prospect of war as sanctions loom, strengthened, with USD/RUB down 0.7% at 75.7917.

Back in the U.S., the debate continues about how aggressive the Federal Reserve will have to be this year in terms of interest rate hikes to combat consumer inflation at levels not seen for 40 years.

Cleveland Fed President Loretta Mester said late on Thursday the Fed would need to raise interest rates at a faster pace and shrink its balance sheet more quickly than it did after the "Great Recession", while St. Louis Fed President James Bullard said the Fed may need to raise rates above 2% to tame inflation.

That said, the advocates for a 50 basis point Fed hike in March received a blow Thursday as initial jobless claims unexpectedly rose for the first time since mid-January, climbing by 23,000 to 248,000 in the week ended Feb. 12, the reference week for the February jobs report that’s due early next month.

There are more Fed speakers due later Friday, including Chicago Fed President Charles Evans, FOMC member John Williams and Fed Vice Chair Lael Brainard, while economic data will be concentrated on the housing sector.

Elsewhere, GBP/USD rose 0.1% to 1.3624, boosted by British retail sales growing faster than expected in January, climbing 1.9% in January after a 4.0% decline in December. Sales were 9.1% higher than a year earlier, when non-essential shops were shut due to lockdown restrictions.

This quick rebound will add to expectations that the Bank of England will continue to lift interest rates, having hiked at its last two meetings, as the year progresses.  

USD/TRY rose 0.3% to 13.6149 after Turkey’s central bank kept its benchmark interest rate unchanged for a second month on Thursday, as it struggles to contain rampant inflation while President Recep Tayyip Erdogan preaches a low interest rate policy.