Euro Slumps Hit by Bullish Oil And US Dollar

The Russian army's increasingly aggressive invasion of Kyiv has again increased oil prices and demand for the US Dollar. As a result, the euro weakened.

The euro fell nearly one percent against the US dollar in Monday's trading session (01/March) tonight. EUR/USD is trading at $1.1113, its lowest level since June 2020.

Investors temporarily sidelined from the market while monitoring the latest developments from Ukraine. After the failure to agree in the first negotiations, Russia is now continuing its military operations. The Russian army warned civilians of Kyiv to leave their homes immediately before the bomb attacks intensified.

That sent US stocks down along with US Treasury bond yields. Traders are also busy buying safe havens such as US Dollars or Swiss Francs. Russia's decision to go to war with Ukraine caused instability in the world oil market. Today, oil prices rebounded and surpassed $100 a barrel. As a currency with a high risk profile, the euro is quite sensitive to this.

"There is a possibility of a global oil shock like the 70s. Investors are moving to safe havens as fast as they can," said Karl Schamotta, chief market strategist at Cambridge Global Payments in Toronto. "The euro is at the forefront here and is the currency most exposed to shocks in the energy sector. The euro is falling as oil and gas prices soar."

Today's high-level negotiations between Russia and Ukraine have yielded no results. The Russian side wants its demands to be fulfilled unconditionally, including legitimizing Russia's sovereignty over Crimea. Ukraine was also asked to abandon its intention to join NATO and maintain neutral status. Going forward, the two countries that are currently at war will resume negotiations.

Despite the influence of the Ukrainian crisis, the strengthening of the US Dollar after the release of the ISM Manufacturing PMI also weighed on EUR/USD. The ISM version of the US Manufacturing PMI was reported to have risen from 57.6 to 58.6 in February, higher than expectations for a rise to 58.0. The easing of restrictions and the declining number of COVID-19 infections were factors that spurred US manufacturing performance.