Euro Pulls Back Against Dollar Amid Reports of Russian Missile Strike in Poland

The Euro has lost ground against the US dollar following reports that Russian missiles struck inside the Polish border, resulting in the deaths of two Polish citizens. This development has sparked concerns due to Poland’s status as a NATO member, raising the potential for a significant geopolitical escalation.

The decline in the Euro is primarily driven by fears of a possible retaliation from Poland or NATO forces if the reports are confirmed. Poland has previously asserted its readiness to defend its sovereignty against any attacks within its borders, which could trigger a broader NATO response. As of now, NATO and US authorities are investigating the incident, and markets are likely to remain cautious until official statements are made.

Despite this setback, the Euro remains higher against the dollar, supported by softer-than-expected US Producer Price Index (PPI) data. The PPI, a key measure of wholesale inflation, rose by just +0.2% month-over-month in October 2022, below the forecasted +0.4%. This data has reinforced the belief that inflation in the US has peaked and is beginning to slow. Prior to the missile report, the EUR/USD pair was approaching the 1.0500 mark but dropped as low as 1.0280 after the news broke. It has since recovered, nearing the 61.8% Fibonacci level between the recent high and low.

Earlier in the week, the EUR/USD rallied on the back of US consumer inflation data released on November 11th, which indicated that inflation may have peaked. Despite the recent volatility, the EUR/USD remains up 2.7% for the week.