EURUSD fell sharply yesterday evening amid escalating geopolitical tensions. The Euro is set to be more vulnerable than the Dollar to an escalation of the conflict, economists at Commerzbank report. 

Escalation of Ukraine conflict?

“Fears of an escalation of the Ukraine war after the report of suspected Russian missile strikes in Poland near the Ukrainian border weighed on the Euro. However, I would attribute the market reaction less to the ‘safe haven’ function of the Dollar, as can be read everywhere, but rather to the fact that the eurozone, and thus the Euro, would suffer more from an escalation than the US.”

“Purely because of geographical proximity, Russia's trade with Europe is more intensive than with the US, which means that trade embargoes also have a greater impact on Europe's economy. To some extent, European companies may have already voluntarily started to switch to new suppliers. However, the market is likely to see the risk of renewed supply chain problems if imports from Russia stop altogether.”