Euro US Dollar Exchange Rate Falls as Putin Escalates War
The Euro US Dollar (EUR/USD) exchange rate dropped this morning after Russia announced, a ‘partial mobilisation’ of its forces.
At the time of writing the EUR/USD exchange rate is trading at around $0.9903, which is down roughly 0.7% from this morning’s opening rate.
Euro (EUR) Plummets as Putin Partially Mobilises
The Euro (EUR) is down against all of its peers this morning as Russian president Valdimir Putin announces a ‘partial mobilisation’ of Russia.
This follows Russian-occupied Ukrainian territories announcing they would hold referendums to decide whether to join Russia yesterday.
If the territories are recognised as Russian post referendum, any move from Ukraine to retake the lands will be seen as an act of war.
Czech prime minister said this morning that:
‘The partial mobilisation announced by Vladimir Putin is an attempt to further escalate the war launched by Russia in Ukraine and further proof that Russia is the only aggressor.’
This news is weighing on the Euro today as investors and economists consider the impact on the European economy. The economy has been severely damaged by the Ukrainian war and further escalation would only exacerbate issues.
US Dollar (USD) Bolstered ahead of Fed Rate Decision
The US Dollar (USD) is strengthening against most of its peers this morning ahead of the Federal Reserve’s rate hike decision this evening.
This comes after the US Dollar reached a near two decade high during Tuesday’s trading session.
USD investors forecast the Fed will deliver its third consecutive 75bps hike today. There is also some speculation that there the Fed could raise the interest rate by a full percentage point.
Federal policymakers have been clear about their plan to continue aggressively tightening monetary policy to curb inflation. As such further rate hikes are expected to continue into 2023, with the interest rates expected to reach 4% by December.
Ellen Zentner, chief US economist at Morgan Stanley says the Fed has got the space to continue rising rates:
‘Thus far, higher rates have inflicted little widespread pain on the real economy, so the Fed has room to continue hiking into restrictive territory.’
Meanwhile, fears of an escalation of the war in Ukraine have also bolstered the appeal of the safe-haven US Dollar this morning.
Euro US Dollar Exchange Rate Forecast: USD Direction to be Tied to Fed Forward Guidance?
Looking ahead, the Euro US Dollar exchange rate will likely be driven by the Fed’s rate decision this evening.
The market has already priced in on the 75bps hike, so unless the bank opts for a bumper 100bps increase the focus will be on the bank’s forward guidance.
If the Fed signals the current pace of tightening will continue into 2023 it’s likely the US dollar may extend its gains.
The Fed’s accompanying economic projections will also be of note. A downbeat outlook for the US economy could rattle investors and bolster safe-haven demand.
There is a lack of significant EU data today, as such the Euro will likely continue to trade on Ukrainian war developments.