EUR/USD is clinging to the precipice of the abyss at 1.0800, with the ECB keeping an eye on it

In Asia, the EUR/USD is attempting to correct higher, following the lead from yesterday’s trade, when the price was established just ahead of 1.08, the figure at which it was pinned near a 22-month low. The situation in Ukraine casts a pall over Europe’s economic prospects, and the US dollar is being favored over the single currency as a result of central bank divergence. The dollar rose on Monday, helped by safe-haven flows, as investors weighed the effects of rising oil prices on global economic growth. They had reached a 14-year high but have begun to fall slightly, providing some relief to the euro in Tokyo on Tuesday.

The United States and its European allies have considered prohibiting Russian crude imports, sending Brent, the global benchmark for oil prices, to $138 billion barrels. The dollar index (DXY), which measures the value of the greenback against six global peers, was also higher overnight, sending the common currency down 4% against the dollar since Russia launched what it calls a “special military operation” in Ukraine.

The economic consequences of the war for the eurozone will necessitate the ECB maintaining maximum flexibility on its path to normalisation. The divergence between the ECB and the Federal Reserve favours the US dollar, making 1.0800 vulnerable in the coming days, depending on the ECB’s decision.

Meanwhile, due to the media embargo ahead of next week’s FOMC meeting, the week will be devoid of Fed speakers, but the market is fully priced for a 25 basis point hike on March 16 as the start of the tightening cycle.