- EUR/USD falls sharply below 1.0950 as geopolitical tensions worsen.
- Fears of renewed conflict in the Middle East region have enhanced the attractiveness of safe-haven assets.
- The ECB is not obliged to raise interest rates further.
The EUR/USD pair has fallen below the crucial support at 1.0950 as market sentiment has turned risk-averse amid escalating tensions in the Middle East. The pair has been hit hard as demand for safe-haven assets has improved considerably.
S&P 500 futures post significant losses late in the European session, indicating a sharp decline in risk appetite among market participants. Fears of worsening conflicts in the Middle East following US airstrikes against Iran-backed Houthi rebels in retaliation for attacks on commercial oil shipments from the Red Sea have dampened market sentiment.
The US Dollar Index (DXY) has rebounded sharply above 102.50, supported by persistent rise in US inflation and geopolitical tensions. US headline inflation accelerated sharply in December due to rising rental prices and healthcare costs. Although bets supporting a rate cut by the Federal Reserve (Fed) in March remain firm.
According to CME's Fedwatch tool, the odds in favor of a 25 basis point (bp) rate cut in March are slightly over 68%.
Meanwhile, investors await US Producer Price Index (PPI) data for December, due at 13:30 GMT. The annual headline PPI is expected to post strong growth of 1.3%, up from 0.9% in November. Over the same period, the core PPI, which excludes food and oil price volatility, will slow to 1.9%, down from 2.0%.
In the Eurozone, the president of the European Central Bank (ECB), Christine Lagarde, has confirmed that the central bank will no longer raise interest rates. She added that the worst of inflation is over, but that rate cuts will come if the central bank is confident that inflation falls towards 2%. Asked about the economic contraction, Lagarde stated that the euro zone is not officially in recession.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
