EUR/USD plunges below 1.1000 as the Russia-Ukraine war escalation renews fears of a recession in Europe

• EUR/USD has slipped near 1.0970 amid de-escalation in Russia-Ukraine peace talks.
• Moscow may find more sanctions from the West on the death of civilians in Bucha, Ukraine.
• The DXY is scaling higher amid rising odds of a 50 bps interest rate hike by the Fed.

The EUR/USD pair has taken the bullet as the escalation in tensions between Russia and Ukraine has brought an intense sell-off in the shared currency, which has dragged the pair near 1.0970. The Russia-Ukraine peace talks were progressing as the officials from both nations were discussing the elements of the ceasefire special document. A verbal ceasefire was dictated but official confirmation was still the requirement.

Things were going fine, but cornering Russia for the death of civilians by Ukraine has raised hopes for more sanctions on Moscow by the Western leaders. Additional sanctions on the Kremlin may bring stagflation in Europe. Sanctions on Russia are likely to elevate their oil stockpiles, which will result in lower supply to Europe and henceforth escalation in inflation along with lower growth rate. Europe, which addresses around 25% of its oil consumption from Russia, will face the heat of tight supply.  This has underpinned the greenback against the shared currency.

Meanwhile, the US dollar index (DXY) is awaiting a trigger that could support it in establishing above 99.00. The DXY has witnessed a strong upside amid rising bets over a 50 basis point (bps) interest rate elevation by the Federal Reserve (Fed) in May’s monetary policy.

Going forward, investors will focus on the US ISM Services PMI which is on Tuesday. An outperformance is expected from the economic data as the market estimate has risen to 58 against the prior print of 56.6. Later this week, minutes from the Federal Open Market Committee (FOMC) will be the major trigger that investors will keep on the radar.