Euro has remained resilient to currency counterparts despite Tuesdays events in Poland, Yen supported by USD decline

Summary:

• The EUR/USD has displayed remarkable resilience to trade higher.
• The British Pound plummeted against the Euro.
• The JPY has clearly benefited from the decline in the value of the USD.

Financial markets are on high alert

The market is reflecting bullish signals for this currency pair. According to the most recent 30-day Fed Fund futures price information, the Federal Reserve is anticipated to increase interest rates by a further 100 basis points over the upcoming months, to 475–500bps, and then suspend their tightening cycle. Despite yesterday's concern following reports of a missile landing in Poland, the EUR/USD has displayed remarkable resilience to trade higher this morning. According to Joe Biden's remarks, it seems improbable that Russia fired the missile based on its trajectory. Due to the possibility of a wider conflict now that a NATO ally has been negatively impacted by the Russia/Ukraine crisis, the missile has put Europe, NATO, and financial markets on high alert. At 9:00 GMT, NATO has called an emergency meeting to review yesterday's events and the alliance's response.

✕ EUR/USD price chart

UK inflation figures caused GBP to decline

The market is reflecting mixed signals for this currency pair. Following some hotter-than-expected UK inflation figures that suggested the Bank of England could not yet afford to stop its interest rate hike cycle, the British Pound plummeted against the Euro, the Dollar, and other major currencies. However, we cautioned in our week-ahead forecast that the market might now consider stronger-than-expected inflation as a negative, as rising prices and interest rates would snuff out the UK's prospects for economic development. Normally, such a result would help the Pound.

✕ EUR/GBP price chart

JPY supported by weak USD

The market is reflecting mixed signals for this currency pair. The Japanese Yen has clearly benefited from the decline in the value of the US dollar in November, outperforming all other major currencies. However, analysts at MUFG believe the Japanese Yen could rise even more in the future, especially against the British pound. They advise clients to bet against the GBP/JPY pair and look for a fall to 158. After official data revealed that U.S. inflation softened in October, the Yen surged substantially against all equivalents in the G10 group of major currencies, but analysts at Japan's largest banking MUFG claim that this was just the start of a longer-lasting rebound.

✕ GBP/JPY price chart

Sources: finance.yahoo.com, poundsterlinglive.com, dailyfx.com