The USD to Euro Exchange Rate advanced to its highest best level in nine months on Wednesday as demand for safe haven assets increased on concerns that Russia could intervene militarily in Eastern Ukraine.
Markets were jittery on news that Russian armed forces were massing along the Ukrainian border.
Concerns were already high after Poland’s Prime Minister Donald Tusk said that he has information indicating that there is a growing threat of direct military intervention by the Russians in Ukraine.
Poland’s foreign minister Radek Sikorski expressed concern on Tuesday over the heightened risk of invasion.
‘We have reasons to suspect – we have been receiving such information in the last several hours – that the risk of a direct intervention is higher than it was several days ago,’ Tusk told a press conference on Wednesday.
The increased movement of Russian forces is thought to be because of Ukrainian government forces preparing to launch an assault on the last few cities held by Pro-Russian rebels.
‘Right now Russia’s introducing powerful weapons that can cause mass casualties and destruction of Ukrainian troops, hoping that will stop the Ukrainian offensive, If the fall of Donetsk and Lugansk and Novorossiya seems imminent, then Russia could intervene covertly, with special forces and air support and more powerful weapons. I would believe that’s right now in the cards,’ said independent defence analyst Pavel Felgenhauer.
The ‘Greenback’ advanced as investors turned to the safe haven currency and added to the currency’s strength following a run of positive economic data releases.
Positive trade data for the world’s largest economy also lent support.
According to the Washington based Commerce Department the USA’s trade deficit narrowed in June by 7% to $41.5 billion.
The trade gap is now at its narrowest point since January and was an improvement on May’s figure of $44.7 billion.
The Euro meanwhile fell against the majority of its most traded peers. Negative data out of the single currency bloc increased pressure on the European Central Bank to take further action to try to stimulate the Eurozone’s faltering economy.
The ECB’s latest policy meeting will take place on Thursday.
Data out of Germany showed a steep decline in factory orders and GDP data out of Italy showed that the currency bloc’s third largest economy has slid back into recession.
The Pound (GBP) was also weaker against the US Dollar after a report showed that UK store prices tumbled to their lowest level since 2006. Food price inflation also fell to a session low.
Industrial and Manufacturing Production both came in below economist expectations.
UPDATED: 09:15 GMT 07 August, 2014
USD/EUR Holds Gains Before ECB Decision
The US Dollar to Euro (USD/EUR) exchange rate held gains overnight and began European trading on Thursday in a stronger position.
If the European Central Bank (ECB) uses today’s interest rate decision to provide a timeline for the potential introduction of quantitative easing style stimulus measures the Euro could extend declines against its North American rival.
Similarly, if today’s US Initial Jobless and Continuing Claims figures add to the recent run of better-than-expected US economic reports the US Dollar could enjoy another show of strength.
Before the weekend we forecast that further USD/EUR exchange rate volatility could be caused by German trade data and the US Wholesale Trade Sales figures.
US Dollar (USD) Exchange Rates
[table width=”100%” colwidth=”50|50|50|50|50″ colalign=”left|left|left|left|left”]
Currency, ,Currency,Rate ,
US Dollar,
,Pound Sterling,0.5938 ,
US Dollar,,Euro,0.7492 ,
US Dollar,,Canadian Dollar,1.0944 ,
US Dollar,,Australian Dollar,1.0728 ,
Pound Sterling,,US Dollar,1.6837 ,
Euro,,US Dollar,1.3346 ,
[/table]
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