Weekly Roundup: Euro slides amid escalating Russia-Ukraine tensions

Upbeat trade at the start of last week’s session put the safer euro on the back foot, while a smaller-than-expected improvement in Eurozone consumer confidence failed to support EUR.

Although Tuesday’s data was better, with the Eurozone’s flash PMIs both beating forecasts, the single currency was unable to gain any notable ground.

Escalating Russia-Ukraine tensions then put pressure on EUR midweek. After Germany and other Western allies agreed to send battle tanks to Ukraine, markets became fearful of another escalation in the conflict.

Russia retaliated with a barrage of missile and artillery strikes, while claiming that the donation of tanks amounted to ‘direct involvement in the conflict’ from NATO countries. Anxiety that the conflict could intensify once again troubled EUR investors, and this kept the common currency subdued through to the end of the week.

The euro regained ground at the start of this week, despite German GDP missing forecasts. Eurozone economic sentiment unexpectedly rose to a seven-month high, lifting EUR, while easing worries about a Russian retaliation may have also helped.

The week ahead is set to be a busy one for EUR. A forecast contraction in Eurozone GDP growth for the fourth quarter of 2022 may weigh on the single currency.

Investors will also closely watch the bloc’s latest inflation rate reading for clues ahead of the European Central Bank (ECB) meeting on Thursday. If the ECB once again signals that more 50bps rate hikes are on the way, the common currency could strengthen.