Dollar Retreats Following Discovery of Source of Poland Missile Strike

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As it became clear that a missile strike on Poland was most likely the result of Ukrainian air defenses, the dollar (USD) fell back on Wednesday toward the multi-month lows it had reached on Tuesday.

Dollar Descent Triggered by Lower-Than-Expected CPI

The euro (EUR) was last seen trading 0.46% higher, at 1.0395, and was getting close to Tuesday’s four-and-a-half month high of 1.0481, which it reached after US producer price inflation came in below estimates.

This information supported speculations that the lower-than-expected consumer price inflation from the previous week was not an anomaly. If sustained, the US Federal Reserve should be able to reduce or even halt the rapid rate hikes that this year drove the dollar to multi-decade highs versus the pound (GBP), euro, and yen (JPY).

The European common currency recovered from a low of 1.0280 on Tuesday when news of the explosion pushed speculators to the shelter of the dollar, which also caused dips in equities. Daily movements, however, were more a consequence of geopolitical concerns.

Initially claiming that a Russian missile was most likely to blame for the explosion, NATO members Poland and Ukraine later changed their statements to indicate that a Ukrainian air defense missile was most likely to blame.

According to Kim Mundy, senior currency strategist at the Commonwealth Bank of Australia, “Geopolitical risks continue to hang over currency markets and are likely to remain a key driver of volatility.”

In contrast to the United States, inflation in Britain is on a steady rise and reached a 41-year high in the year ending in October, according to data released on Wednesday.

After the data, sterling remained stable for a while before joining the larger rise triggered by the reduction in geopolitical tension to increase by 0.5% to 1.1924.