Final answer:
A compass needle deflects when placed near a current-carrying wire due to the magnetic field generated by the current which interacts with Earth's magnetic field. The direction and magnitude of deflection depend on the current's direction and the orientation of the wire.
Step-by-step explanation:
When a horizontal wire carries a current, it generates a magnetic field around it. This will affect a compass placed near it. A compass needle is, essentially, a tiny magnet that aligns itself with the Earth's magnetic field. In the presence of another magnetic field, such as that created by the current flowing through a wire, the compass needle will deflect due to the interaction of the Earth's magnetic field and the wire's magnetic field.
Using the right-hand rule, where the thumb points in the direction of the current, and the fingers curl in the direction of the magnetic field, we can determine the direction of this magnetic field. For a current flowing east in a wire, the compass needle above the wire would deflect to show the combined influence of Earth's field and the field created by the wire. The needle will point in the direction of the resultant field, which will be tangential to the circle formed by the wire's field. This deflection shows the impact of the current-carrying wire on the surrounding magnetic field.