Above image credit: Amaury Laporte. Accessed: Flickr. Licensing: Creative Commons 2.0.

The Euro recovered against Pound Sterling and Dollar on headlines that Russia would immediately cease its military campaign if Ukraine agreed to a list of demands, although this headline driven market will continue to offer up significant volatility over coming days.

The Euro fell to multi-year lows against the Pound, Dollar and other currencies on Monday but ultimately recovered much of these losses into the Tuesday session with foreign exchange analysts citing the recovery on a newswire report that Russia is ready to halt military operations "in a moment" if Kyiv meets a list of conditions for the shift in sentiment.

Kremlin spokesman Dimitry Peskov said Russia would withdraw forces if Ukraine cease military action, change its constitution to enshrine neutrality, acknowledged Crimea as Russian territory, and recognise the separatist republics of Donetsk and Lugansk as independent states.

"We have also spoken about how they should recognise that Crimea is Russian territory and that they need to recognise that Donetsk and Lugansk are independent states. And that’s it. It will stop in a moment," said Peskov.

"Big step back from Russia and signal for dip-buying if true, but there is a sizeable risk that this is all a ruse," says Simon Harvey, Senior FX Market Analyst at Monex.

The Euro and other European countries have been hit particularly hard since the conflict began, with investors believing the European Central Bank would almost certainly have to delay the timing of its first interest rate rise.

The Euro fell to its lowest level against the Dollar since May 2020 on Monday March 07 at 1.0806 while the Euro fell to its lowest level against the Pound since July 2016 at 1.8203.

The Pound to Euro exchange rate went as high as 1.2188.

This meant some independent providers such as Global Reach were offering Euro money transfer rates above 1.21 for the first time since 2016. For today's quote, please see here. To set up a rate alert, please do so here.

But the Pound to Dollar rate continued its decline and is back to November 2020 lows at 1.3180 as the U.S. currency commands a solid 'safe haven' bid.

Analysts say the Euro would likely remain under pressure as long as the war continues but any hopes of a ceasefire or resolution to the conflict could benefit the currency.

Russia's demands came on the day a third round of talks were held between Russian and Ukrainian negotiators aimed at striking a ceasefire and potential end to the conflict.

The talks took place in Belarus but ended without breakthrough.

Above: Daily price chart for EUR/USD (top) and GBP/EUR (bottom).

Investors will now turn focus to the meeting between Russia's Foreign Minister Sergei Lavrov and Ukrainian counterpart Dmytro Kuleba in southern Turkey on Thursday, the first potential talks between the top diplomats since Russia launched its invasion of Ukraine.

"We especially hope that this meeting is a turning point and... an important step towards peace and stability," said Mevlut Cavusoglu, Turkey's foreign minister, who helped broker the talks.

This remains a volatile and headline-driven market that is likely to see significant swings and it is therefore too soon to call an end to the Euro's trend of weakness.

Of particular importance to markets is the surging cost of oil and gas.

Currency markets have witnessed a binary move in favour of those currencies that belong to energy exporting countries, while net energy importers and those geographically closest to Ukraine lost value.

"The conflict in Ukraine is clearly a negative EUR shock. In the short term, the EUR has room to trade lower on the stagflationary implications for the euro area but, in the medium term, the crisis should force structural integration supporting the euro," says a weekly currency research briefing note from Barclays.

Economists say the surging cost of oil and gas will hurt the Eurozone's economy particularly hard given its significant integration with Russia's energy industry.

Fears of a slowdown in Eurozone economic growth could meanwhile lead the European Central Bank (ECB) to reconsider the speed at which they 'normalise' monetary policy settings, which in turn caps Eurozone bond yields and weighs on the Euro.

"Higher commodity prices are threatening to force central banks to slam on the monetary policy brakes faster than would otherwise be the case, which is hurting sentiment," says Valentin Marinov. Head of FX Research at Crédit Agricole.

Having 'gapped' higher in the Asian open oil and gas prices ultimately reversed from their highs as the day progressed, in part thanks to confirmation from Germany's Finance Minister Christian Lindner said his country is not currently planning to stop importing Russian oil, gas and coal.

The retreat from earlier highs in oil and gas allowed Euro exchange rates to retrace earlier losses.