The euro plummeted last week, and it remains in a difficult position as the threat of war between Russia and Ukraine mounts. In addition, the increase in the US Consumer Price Index due to inflation also puts downward pressure on EUR/USD. There is also speculation that the US central bank could set a 0.5% rate hike by March, and it could even be increased before that time.
The weekly chart of the EUR/USD shows high market volatility since mid-December last year. The market volatility erupted after reports went viral three days ago from US intelligence that Russia could launch an attack on Ukraine in one to two weeks. As a result, the euro could be set for a massive sell-off if speculation about conflicts between both nations continues to mount.
The Likelihood of an International Conflict Could Spark a Massive Sell-off of the Euro
The market is known not to favour uncertainties. Therefore, the likelihood of an international conflict that will cause a disruption of the economy and destabilize politics will most likely lead to a massive sell-off of the euro. The report has also sent the cost of crude oil spiralling upward with the possibility of an interruption in supply from Russia to other Western countries. The increase in oil prices may also present many challenges to the European Central Bank.
Christine Lagarde, President of the European Central Bank, has regularly downplayed taking radical actions since the announcement of ECB monetary policy in February (which resulted in a market rally for two days). She noted that taking extreme action may lead to a weaker recovery. She is set to make further announcements at the European Parliament debate today.
This news will not help the euro’s immediate recovery, and we could see the market drop even lower.
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