The Euro to US Dollar (EUR/USD) exchange rate is trending higher today, with the pairing up by around 0.4% at $1.0990 amidst hopes for a diplomatic solution to the war in Ukraine.
Euro (EUR) Exchange Rates Buoyed by Hopes for Diplomatic Solution to War in Ukraine
The Euro (EUR) is trading with modest gains against the US Dollar (USD) today, amidst growing hopes for a negotiated end to the Russia-Ukraine war.
The two sides are currently engaged in high-level peace talks, with both Ukrainian and Russian officials having expressed their optimism about the chances of a ceasefire being agreed.
EUR investors have embraced this optimism, with hopes a swift end to the war will help to limit the damage to the Eurozone economy, which is seen as highly exposed to the conflict.
However, the Euro’s upside potential remains capped as the ongoing shelling of civilian targets in major Ukrainian cities somewhat tempers hopes for peace. An adviser for Ukrainian President Volodymr Zelenskiy suggested the war is currently at a crossroads.
Oleksiy Arestovych, said: ‘We are at a crossroads. Either we will agree at the current talks or the Russians will make a second attempt [at an offensive] and then there will be talks again.’
Elsewhere we are also seeing the Euro’s gains capped by the publication of Germany’s latest ZEW surveys.
March’s economic sentiment index, reported a record plunge in investor confidence amidst fears the war in Ukraine could push Germany towards a recession.
ZEW President Achim Wambach, commented: ‘A recession is becoming more and more likely. The war in Ukraine and the sanctions against Russia are significantly dampening the economic outlook for Germany.”
‘The collapsing economic expectations are accompanied by an extreme rise in inflation expectations. The experts therefore expect stagflation in the coming months.’
US Dollar (USD) Exchange Rates Muted amid Mixed Risk Appetite
At the same time, the US Dollar (USD) is struggling to attract any meaningful support as safe-haven demand is being dampened by the hopes a diplomatic solution to the war in Ukraine could be found in the coming weeks.
However this is not to say investors are entirely risk-off, with concerns over China’s Covid resurgence starting to bubble.
After new cases tripled in recent days, Beijing –which is still pursuing a zero-Covid strategy- place millions back into lockdown, with analysts concerns about the potential knock on effects on global trade.
Stephen Innes, managing partner at SPI Asset Management, explains: ‘Though global demand is widely expected to return to pre-Covid levels this year, China is an important enough part of the worldwide demand picture that a new wave of lockdowns could prolong the recovery cycle.’
Moreover movement in the US Dollar is being limited by USD investors’ reluctance to place any aggressive bets ahead of the Federal Reserve’s latest interest rate decision.
EUR/USD Exchange Rate Forecast: Will a Hawkish Fed Rate Hike Propel the US Dollar Higher?
Looking ahead to tomorrow’s session, Ukraine may take a back foot with the Fed’s interest rate decision likely to act as the main catalyst of movement in the Euro to US Dollar (EUR/USD) exchange rate.
The Fed is widely expected to deliver its first interest rate hike in three years when it concludes tomorrow’s meeting.
But with the hike largely priced in any movement in the US Dollar is likely to be determined by the Fed’s forward guidance. If the US central bank indicates plans to accelerate its current tightening cycle then USD exchange rates could surge.
Meanwhile, EUR investors are likely to remain focused on the situation in Ukraine, which could underpin the Euro if markets remain hopeful of a ceasefire being agreed in the near-term.