The EUR/USD currency pair remains subdued on Wednesday, hovering around 1.0590 during Asian trading hours, as the US Dollar (USD) gains strength. This USD appreciation is likely fueled by safe-haven flows, driven by escalating geopolitical tensions in the Russia-Ukraine conflict.
A Reuters report late Tuesday highlighted a significant development: Ukraine, with US-supplied ATACMS missiles, launched its first strike on Russian territory, marking a critical escalation on the 1,000th day of the ongoing conflict. In response, Russian President Vladimir Putin expanded Russia’s nuclear policy to include potential nuclear retaliation against major conventional attacks. However, concerns eased somewhat after Russian Foreign Minister Sergei Lavrov reassured that the government would take all necessary steps to prevent nuclear war.
The EUR/USD is facing downward pressure, with the Euro falling to a more-than-one-year low of $1.0496 last week, amid worries over the potential impact of US trade tariffs on Eurozone growth. Simultaneously, the US Dollar is bolstered by expectations that the incoming Trump administration’s pro-inflationary policies may drive up inflation, which could prompt the Federal Reserve to slow its rate-cutting pace.
The Eurozone also faces challenges, with European Central Bank (ECB) President Christine Lagarde set to deliver the opening remarks at the ECB’s Conference on Financial Stability and Macroprudential Policy in Frankfurt on Wednesday. Inflation in the region has proven more persistent than expected, and the European economy continues to show signs of imbalance, complicating the ECB’s efforts to stabilize the economy.
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