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EUR/USD tumbles below 1.0950 as Middle East tensions escalate, US PPI eyed

  • EUR/USD falls sharply below 1.0950 on deepening geopolitical tensions.
  • Fears of widening conflicts in Middle East region have improved the safe-haven appeal.
  • The ECB is not required to raise interest rates further.

The EUR/USD pair has slipped below the crucial support of 1.0950 as the market mood has turned risk-averse amid deepening Middle East tensions. The major currency pair has been hit hard as demand for safe-haven assets has improved significantly.

S&P500 futures are facing significant losses in the late European session, indicating a sharp decline in the risk-appetite of the market participants. Fears of widening conflicts in the Middle East region after US airstrikes on Iran-backed Houthi rebels in retaliation for striking on commercial oil shipments from Red Sea has dampened the market sentiment.

The US Dollar Index (DXY) has rebounded sharply above 102.50, supported by stubbornly higher United States inflation and geopolitical tensions. The US headline inflation accelerated sharply in December amid elevating rental prices and healthcare costs. While bets supporting a rate cut by the Federal Reserve (Fed) in March are still firm.

As per the CME Fedwatch tool, chances in favour of a rate cut by 25 basis points (bps) in March are slightly above 68%.

Meanwhile, investors await the US Producer Price Index (PPI) data for December, which will be published at 13:30 GMT. The annual headline PPI is forecasted to grow strongly by 1.3% against 0.9% gain in November. In the same period, core PPI that excludes volatile food and oil prices is seen decelerating to 1.9% against 2.0%.

On the Eurozone front, European Central Bank (ECB) President Christine Lagarde has confirmed that the central bank is done with hiking interest rates. She added that worst about inflation is behind us but rate cuts would come if the central bank gets certain about inflation declining towards 2%. While asked about economic shrinkage, Lagarde said the Euro zone is not in an official recession.

 

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