Euro US Dollar Exchange Rate Buoyed by Opening of Humanitarian Corridors
The Euro US Dollar (EUR/USD) exchange rate is enjoying tailwinds today as the opening of humanitarian corridors in Ukraine improves risk appetite.
At the time of writing, the EUR/USD exchange rate is trading at around $1.0834, roughly up 0.4% from today’s opening levels.
Euro (EUR) Bolstered on Ukraine Hopes
The Euro (EUR) is trading higher against the US Dollar (USD) as Russia agrees to a humanitarian corridor from Mariupol.
According to Ukraine’s Deputy Prime Minister, Iryna Vereshchuk, this will allow women, children, and the elderly to escape Vladimir Putin’s ‘special military operation’.
EUR investors are hopeful the reprieve from the Russian military will allow for peace talks to continue at some point in the future.
However, it is not yet known whether the humanitarian corridor has been successful.
Meanwhile, the Eurozone’s trade balance exceeded expectations. February’s figures reported the bloc’s trade deficit narrowed from €27.2bn to €7.6bn.
This is considerably smaller than the forecast deficit of €29bn and is supporting the single currency.
In addition, Germany’s producer price index has printed higher-than-expected, jumping from 1.4% in February to 4.9% in March.
As a result, interest rate hike bets have improved. EUR investors are optimistic that the European Central Bank (ECB) may attempt to curb rising inflation with a raise in interest rates. In turn, this is aiding the Euro.
US Dollar (USD) Slides on Risk-On Sentiment
The US Dollar (USD) is slipping against the Euro (EUR) as geopolitical developments improve risk appetite.
In turn, investors are turning away from the safe haven currency in search for riskier assets.
On the other hand, the Federal Reserve has signalled it will hike interest rates at the next meeting.
At present, the Fed is likely to raise rates by 50-basis points at its May policy meeting. This comes after US inflation soared to 8.5% in March.
On Tuesday, Fed policymaker Charles Evans delivered a hawkish speech, anticipating interest rates to reach 2.25% – 2.5% by the end of the year.
‘Probably we are going beyond neutral.
‘That’s my expectation, when I see that, taking out special factors, I’m still left with 3 to 3.5% inflation [by the end of 2022].
‘That’s not what we want. If we’re at a 2.5% inflation rate, I think we have more things to ponder there.’
This is maintaining strength in US Treasury yields and is limiting the ‘Greenback’s losses this afternoon.
Euro US Dollar Forecast: Ukraine Crisis to Continue Governing Risk Appetite
For the foreseeable future, Russia’s invasion of Ukraine is likely to continue dominating risk sentiment and dictating the direction of the Euro US Dollar exchange rate.
Should peace talks between Russian and Ukrainian officials remain at an impasse, it may limit demand for the single currency.
Furthermore, the Eurozone’s consumer confidence for April is set to slip. If this prints true, it may weigh on the Euro.
On the other hand, Fed Chair Jerome Powell is due to deliver a speech on Thursday. Will a hawkish outlook further heighten rate hike bets and bolster USD exchange rates?