April 25, 2024

EUR/USD Rises Over 1.0999 as Traders Scramble Over Ukraine Conflict and Inflation Fears

Relief in Chaos

The EUR/USD currency pair floats in the vicinity of 1.0900 as market players experience some sense of relief for the time over the Russia and Ukraine war in the early hours of Wednesday in Europe. In spite of the upcoming Ankara meeting scheduled for Thursday and the fears of stagnant inflation hovering over the Eurozone, traders still remain hopeful.

EUR/USD price chart. Source TradingView

The leading currency pair had its first day of positive closing in more than six days as Ukraine announced the withdrawal of its application to join the North Atlantic Treaty Organization (NATO). There was also a confirmation of a humanitarian corridor to allow for the evacuation of civilians from Kyiv and to provide much-needed aid materials.

Further Diplomacy Strengthens Growth 

After that, the release of American prisons in Venezuela and the American government’s announcement to ease sanctions against the country also boosted the market’s sentiment and aided EUR/USD traders.

Be it as it may, Russia is not likely to celebrate the decision of Ukraine to drop its NATO ambition while its bid to join the European Union is still on. It goes to put down President Vladimir Putin’s desire to have a Kremlin-allied leader in Ukraine, and it could further maintain the fears of escalating conflict in the region.

Recently, Russia has called for the nationalization of foreign companies and factories that closed operations during the conflict. This has raised some doubt on the optimism of the market.

In a reflection of the market mood, the US ten-year bonds yields fell by 2bps to 1.85%, while the S&P 500 futures maintained a firm ground on the day. 

An additional test to the buyers of the EUR/USD pair is the fear of stagnant inflation in the Eurozone. A Reuters report has said that the Eurozone is very dependent on Russia’s energy supply, and it is, hence, the most at risk of stagflation. Although the United States might not be immune to it either.

Meanwhile, an increase in Germany’s Industrial Production in January against an eased US economy favors the EUR/USD pair to face the bears. Germany’s Industrial Production is the strongest growth to be seen since 2020 with up to 2.7%.

The increase in the Eurozone’s Employment Changes year-on-year for Quarter 4 from 2.1% to 2.2% also favored the pair bulls. It should be noted that the Eurozone’s Quarter 4 Gross Domestic Product confirmed 4.6% year-on-year growth as of Tuesday.

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