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Euro rallies on hopes for de-escalation between Russia and Ukraine

currency-newsEuro rallies on hopes for de-escalation between Russia and Ukraine
The euro rebounded on Tuesday as EUR investors were relieved by an apparent de-escalation of tensions between Russia and Ukraine.

Meanwhile, the pound is struggling to find direction so far this morning, with GBP/EUR subdued at €1.1918 and GBP/USD buoyed at $1.3561. GBP/CAD is flat at C$1.7226, while GBP/AUD and GBP/NZD hold steady at AU$1.8905 and NZ$2.0389, respectively.

Looking ahead, will some hawkish FOMC minutes help to propel the US dollar higher today?

What’s been happening?

The euro struck higher yesterday after a Russian military spokesperson announced some of the country’s troops were being pulled back from the border with Ukraine.

While some Western leaders expressed their scepticism about the troop movements, it didn’t deter EUR investors from propelling the single currency higher on hopes war in Europe could be avoided.

This uptick in the euro was further reinforced by the publication of Germany’s ZEW economic sentiment index, which printed at a seven-month high in February.

The improvement in market risk appetite which accompanied the de-escalation of tensions in Eastern Europe saw demand for the safe-haven US dollar soften on Tuesday, although rising US Treasury yields helped to cap the ‘greenback’s losses.

Meanwhile, the pound was subdued yesterday, with data showing a surprise uptick in UK wage growth in December being unable to mitigate concerns over the country’s impending cost-of-living crisis.

What’s coming up?

Kicking off today’s session was the publication of the UK’s consumer price index, with January’s index reporting domestic inflation ticked up to a new 30-year high of 5.5%.

While this will put more pressure on the Bank of England (BoE) to continue hiking interest rates, it might also add to concerns over the squeeze on consumers, which could limit the pound’s upside potential today.

The publication of the Eurozone’s latest industrial production figures may offer direction to the euro this morning, with another contraction in factory output at the end of 2021 potentially dragging on EUR exchange rates.

In the spotlight for USD investors today will be the publication of the minutes from the Federal Reserve’s most recent policy meeting. Expect the US dollar to strengthen if they help to fuel speculation of a half-percentage interest rate hike from the Fed next month.

Also influencing the ‘greenback’ will be this afternoon’s US retail sales release. Will a rebound in sales growth last month help to buoy the US dollar?
Philip McHugh

Philip McHugh

Joining the corporate trading desk in 2007, Phil now over sees all of Currencies Direct’s corporate dealing activity. Having gained experience working with hundreds of businesses to optimise international payments processes and execute comprehensive risk management strategies, Phil currently works with a portfolio of corporate clients whilst managing Currencies Direct’s overall market exposure

Phil has FCA approval and has completed the Certificate in International Treasury Management (CertiTM)

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