EUR/USD rises to near 1.0500 amid improved risk sentiment

• EUR/USD extends its gains as market sentiment improves on hopes for a potential Ukraine peace deal.
• European leaders have agreed to draft a structured peace plan to present to the US, boosting risk appetite.
• The US has paused all military aid to Ukraine under orders from President Trump.

EUR/USD continues its upward momentum for the second consecutive session, trading around 1.0490 during Asian hours on Tuesday. The Euro (EUR) is benefiting from improved market sentiment as hopes for a potential Ukraine peace deal reduce demand for safe-haven assets. European leaders, alongside Ukrainian President Volodymyr Zelenskyy and UK Prime Minister Keir Starmer, have agreed to draft a structured peace plan to be presented to the United States (US), bolstering risk appetite.

According to Bloomberg, citing a defense official on Monday, the United States has halted all ongoing military aid to Ukraine. The decision reportedly comes under orders from President Trump, with Defense Secretary Pete Hegseth directed to implement the pause. As a result, all US military equipment that has not yet reached Ukraine--including weapons in transit via aircraft and ships, as well as those waiting in transit zones in Poland--will be halted.

However, the Euro's upside may be limited ahead of the European Central Bank (ECB) meeting on Thursday, where policymakers are widely expected to cut the Deposit Facility Rate by 25 basis points (bps) to 2.5%. If confirmed, this would mark the ECB's fifth consecutive rate cut, potentially weighing on the EUR.

Meanwhile, mixed US economic data has added to market uncertainty. The ISM Manufacturing PMI fell slightly to 50.3, missing expectations of 50.5 and down from January's 50.9. However, S&P Global's final Manufacturing PMI for February beat forecasts at 52.7, an improvement from its preliminary reading, signaling resilience in the US manufacturing sector.