EUR/USD edges higher to near 1.0550, downside risks appear due to safe-haven flows

• EUR/USD may depreciate due to safe-haven flows amid the escalated Russia-Ukraine conflict.
• ECB member Yannis Stournaras remarked that the Eurozone is nearing a sustainable attainment of its 2% inflation target.
• The US Dollar appreciated due to cautious remarks from Fed officials.

EUR/USD appreciates slightly after registering losses in the previous session, trading around 1.0550 during the Asian hours on Thursday. However, the upside of the pair could be restrained due to safe-haven flows amid rising geopolitical conflict between Russia and Ukraine.

Reuters reported that Ukraine launched a volley of British Storm Shadow cruise missiles into Russia on Wednesday, marking the latest deployment of Western weaponry against Russian targets. Moscow has stated that the use of Western weapons to strike Russian territory far from the border would significantly escalate the conflict.

European Central Bank (ECB) Governing Council member Yannis Stournaras stated on Wednesday that the Eurozone is close to sustainably achieving its 2% inflation target. Stournaras emphasized the responsibility of policymakers to ensure they do not fall short of this goal, according to Bloomberg.

Meanwhile, the EU Financial Stability Review noted that escalating geopolitical tensions and policy uncertainties are intensifying sovereign vulnerabilities while growing global trade disputes heighten the risk of economic shocks. 

Since June, the ECB has implemented three rate cuts as inflation edges closer to the 2% target. However, growth forecasts have been revised downward twice. Markets widely expect a 25-basis-point rate cut next month, with a smaller probability of a more substantial reduction.

The US Dollar (USD) gained support from cautious remarks by Federal Reserve (Fed) officials. Boston Fed President Susan Collins stated on Wednesday that while more interest rate cuts are necessary, policymakers should proceed cautiously to avoid moving too quickly or too slowly, according to Bloomberg.

Meanwhile, Fed Governor Michelle Bowman highlighted that inflation remains elevated over the past few months and stressed the need for the Fed to proceed cautiously with rate cuts.