Euro US Dollar Exchange Rate Surges as Risk-On Sentiment Prevails
The Euro US Dollar (EUR/USD) exchange rate is trading higher today as promising negotiations between Russia and Ukraine are underpinning the single currency.
At the time of writing, the EUR/USD exchange rate is trading at around $1.1154, roughly up 0.6% from today’s opening levels.
Euro (EUR) Climbs in Response to ‘Positive’ Peace Talks
The Euro (EUR) is gaining ground against the US Dollar (USD) today as the latest round of peace talks between Russia and Ukraine were ‘positive’ on Tuesday, according to Volodymyr Zelenskiy.
Ukraine is reportedly willing to adopt a neutral status – one of Russia’s key demands – and in return, Russia has pledged to ‘reduce the military activity’ near Kyiv.
However, Western leaders remain sceptical of Russia’s promises, reiterating they will judge Russia on its actions.
Also supporting EUR exchange rates is Germany’s preliminary inflation reading as figures for March overshot predictions.
Inflation rose sharply to 7.3%, significantly above February’s 5.1% and higher than the market forecast of 6.3%.
This is largely due to the Ukraine crisis as bottleneck supply chains disrupted production and prices increased in a number of sectors.
German statistics office Destatis published a report, stating:
‘Since Russia’s attack on Ukraine, the prices of natural gas and mineral oil products have markedly increased again and have had a considerable impact on the high rate of inflation.
‘Additional factors […] are delivery bottlenecks due to interruptions in supply chains caused by the Covid-19 pandemic and the marked increases in energy product prices at upstream stages in the economic process.’
As the Eurozone’s largest economy, investors are hopeful Germany’s latest surge in inflation might cause the European Central Bank (ECB) to reassess its monetary policy outlook.
US Dollar (USD) Slumps amid Risk-On Sentiment
The US Dollar (USD) is facing headwinds against the Euro (EUR) today as the risk-on mood undermined safe-haven demand.
As negotiations begin to show progress, investors are attracted to higher-yielding assets, leaving the US Dollar to struggle against the majority of its peers.
However, rate hike bets may limit the ‘Greenback’s losses today.
The Federal Reserve is predicted to raise interest rates at its next meeting by 50 basis points and deliver more aggressive steps in an effort to curve high inflation.
Bolstering these expectations is this afternoon’s ADP employment figures.
US businesses in the private sector recruited 455K additional employees during March, beating expectations of 450K, though this was slightly below February’s 486K.
Nela Richardson, chief economist at ADP, said:
‘Businesses are hiring, specifically among the service providers which had the most ground to make up due to early pandemic losses.
‘However, a tight labour supply remains an obstacle for continued growth in consumer-facing industries.’
Euro US Dollar Forecast: Will Peace Talks Continue to Progress?
Looking ahead, the negotiations between Russia and Ukraine are likely to remain a key catalyst for the Euro US Dollar exchange rate.
Should peace talks continue to make progress, it is likely to underpin the single currency whilst causing pressure on USD.
On the data front, EUR may be supported by the Eurozone’s flash inflation reading for March. Inflation is expected to increase to 6.6%, which may fuel speculation the ECB could raise interest rates later this year.
Tomorrow, the Eurozone’s unemployment report may boost the Euro. February’s figures are expected to report the jobless rate slipped from 6.8% to 6.7%.
At the end of the week, the US Dollar is likely to be influenced by March’s non-farm payrolls.
The US economy is expected to have added 490k jobs this month which may bolster demand for the ‘Greenback’.
