Breaking: EUR/USD slumps under 1.0400 with Russia tensions in focus
|EUR/USD fell below the 1.0400 level for the first time since January 2017 on Thursday, with the bears now eyeing a test of 2017 lows in the 1.0340 area. EUR/USD's on-the-day losses now stand at over 1.1% as traders dump the euro in favour of the safe-haven US dollar amid heightened worries about tensions between the EU and Russia amid the latter's ongoing invasion of Ukraine.
EU member nation Finland said it would apply to join NATO "without delay" and Sweden (also an EU nation) is expected to follow suit shortly, ending decades of strategic military "neutrality", as both nations cite security concerns following Russia's attack on Ukraine. Russia vowed an unspecified response.
Meanwhile, the German Economy Minister was recently urging the German public and companies to reduce their gas consumption, which comes against the backdrop of rising concerns about the transit of gas through Ukraine into the EU. Until this week, gas passing through Ukraine had been unaffected by the war.
The most recent bout of euro weakness (it is one of the underperforming G10 currencies alongside its typically more risk-sensitive peers like the Aussie and Kiwi) is likely a reflection of 1) trader attributing a higher geopolitical risk premium to the currency and 2) market participants downgrading their growth expectations for the Eurozone.
Recent downside also reflects a strong dollar, one day after US Consumer Price Inflation data revealed that price pressures failed to abate as much as expected last month, keeping the pressure on the Fed to tighten. The Fed's relatively hawkish stance versus the ECB plus localised European geopolitical/economic risks as a result of the Ukraine war have both prevented EUR/USD benefitting from a hawkish shift in recent weeks from ECB policymakers.
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