Euro US Dollar Exchange Rate Strengthens

The Euro US Dollar (EUR/USD) exchange rate was strengthening during Thursday afternoon as risk appetite drove investors to favor foreign currencies.

At the time of writing, EUR/USD was trading at around $0.9786, which was roughly up 0.2% from Thursday’s opening rate.

Euro (EUR) Exchange Rates Mixed amid Ukraine War Escalations

The Euro (EUR) was up against USD, but mixed traded in a broad range otherwise. This was largely attributed to worsening geopolitical tensions in Ukraine.

Valdimir Putin seems to be weaponizing the blackouts, caused by his drones, across Ukraine in the hopes to break Ukraine’s spirit as warfare within Ukraine escalates. This follows multiple missile attacks over last week that were launched at civilians’ in Kherson, causing devastation in the region.

However, German chancellor Olaf Scholz said that the attempts to break Ukraine’s unity were in vain:

‘We will not let Moscow’s latest escalation go unanswered. Scorched earth tactics will not help Russia win the war. They will only strengthen the unity and resolve of Ukraine and its partners’.

It’s possible that the Euro’s losses were limited by the Eurozone’s energy plans. During his speech to the German Parliament, Scholz said that the EU is looking to coordinate with energy suppliers to free themselves from dependence on Russia gas and avoid hardship this winter.

Concerning cost Scholz said:

‘At the same time we are also talking with producers about an appropriate price. I am convinced: countries like the US, Canada, or Norway, who stand with us on Ukraine’s side, have an interest in Europe’s energy not becoming unaffordable.’

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These mixed signals kept EUR investors on their toes, ensuring that the single currency was varied amongst its exchange rates on Thursday.

US Dollar (USD) Exchange Rates on Back Foot amid Risk Aversion

The USD Dollar (USD) struggled to find support on Thursday as risk appetite gripped investors and saw them turn to more volatile currencies.

This improved market mood came despite the escalating conflict in Ukraine and political chaos happening within the UK. Russia has begun using kamikaze drones to cripple Ukraine’s electrical infrastructure, causing country wide blackouts.

Meanwhile, Liz Truss stepped down as the UK’s prime minister in the afternoon.

In spite of this USD losses were tempered somewhat by the expectation of further aggressive monetary tightening from the Federal Reserve in their next meeting. Markets are currently pricing in a 75bps hike.

Also helping to limit USD losses was the threat of a global recession as slowing economic growth and spiking interest rates made sure investors traded with some caution.

EUR/USD Exchange Rate Forecast: Fed Comments to Drive USD?

Looking ahead, the Euro US Dollar exchange rate could face headwinds in the wake of Fed policymaker speeches due on Friday night.

If the policymakers strike a hawkish tone then the ‘Greenback’ could get a boost, as this would underpin the expectation of an aggressive interest rate hike in the Fed’s next policy meeting. However, a more cautious tone speeded on by global recession fears could indicate a smaller hike and cap USD gains.

In the meantime, The US Dollar is likely to continue trading in line with risk sentiment.

Turning to the Euro the lack of impactful data on Friday will likely see the currency continue to trade on developments within the Ukraine war.

For the remainder of Friday’s session though it’s likely that the Euro will continue to enjoy tailwinds due to its negative trading correlation with USD.