The EUR/USD has fallen below the 1.0400 level on Thursday for the first time since January 2017, with bears now eyeing a test of 2017 lows in the 1.0340 area. At time of writing, the daily low is at 1.0388.
EUR/USD losses for the day are now above 1.1% as investors dump the euro in favor of the safe haven US dollar, amid growing concern over tensions between the EU and Russia over the ongoing invasion of Ukraine by the latter.
Finlandan EU member country, has declared that it will apply for NATO membership “without delay”, and is expected to Sweden (also an EU country) will do the same shortly, ending decades of strategic military “neutrality” as both nations Allege security problems after Russia’s attack on Ukraine. Russia promised an unspecified response.
Meanwhile, the German Economics Minister recently urged the German population and companies to reduce their gas consumption, which comes against a background of growing concern about the transit of gas through Ukraine to the EU. Until this week, the gas passing through Ukraine had not been affected by the war.
The latest bout of weakness in the euro (it is one of the worst performing G10 currencies, along with more risk-sensitive ones such as the AUD and NZD) is likely a reflection of: 1) the attribution by investors of a higher geopolitical risk premium to the currency and 2) the lowering of growth expectations for the euro zone by market participants.
The recent declines also reflect the strength of the dollar, a day after US consumer price inflation data revealed that price pressures did not ease as much as expected last month, keeps pressure on the Federal Reserve to tighten.
The Fed’s relatively aggressive stance towards the ECB and localized geopolitical/economic risks in Europe as a result of the Ukraine war have prevented EUR/USD from benefiting from policy makers’ aggressive reversal in recent weeks. of the ECB.
Source: Fx Street
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