The Euro Falls as Traders Await The European Policy Response to The War in Ukraine

The euro gave up some overnight gains on Thursday after its biggest daily jump since 2016, as traders awaited the European Central Bank meeting and an EU summit to highlight how the bloc’s policymakers responded to Russia’s invasion of Ukraine.

The single currency benefited on Wednesday from a shift in sentiment with risk appetite that lifted stock markets and bond yields and saw oil prices slide amid optimism about diplomatic efforts to end what the Kremlin calls a “special operation” to disarm Ukraine.

The euro is widely seen as a barometer of Europe’s biggest security crisis since 1945 and touched a 22-month low of $1.0804 earlier in the week as investors expected a major impact on European growth.

By 0849 GMT, the euro was trading at $1.10489, down 0.32 percent, after jumping 1.6 percent on Wednesday, its best day since June 2016.

Traders are looking forward to the European Central Bank meeting later on Thursday for clues on how policymakers will balance the risks of high inflation and the damage the war in Ukraine will inflict on economic growth.

Investors expect the central bank to gradually get rid of the pandemic bond-buying program and raise the main interest rate by about 33 basis points before the end of the year.

The currency has been boosted by recent reports that EU leaders are considering issuing joint bonds to fund energy and defense spending.

The dollar index rose 0.2 percent after declining 1.17 percent on Wednesday. Traders are also awaiting US inflation figures due later today, to guide expectations about the Federal Reserve’s meeting next week.

And the British pound fell 0.2 percent to 1.3159 dollars, after it jumped 0.65 percent last night with the euro.

The safe-haven yen hit 115.88 per dollar, near a one-month low, weighed by rising sentiment towards riskier assets such as stocks.