Trump’s change of tone on Ukrainian territory and suggestion to shoot down Russian planes violating NATO airspace have had no impact on European currencies, although they raise downside risks. Macro events look unlikely to steer volatility today. On central bank news, the Riksbank surprised with a cut yesterday, but should be done with easing
USD: No Surprises From Powell
Fed Chair Jerome Powell broadly reiterated his cautious view yesterday, signalling there is some balance between downside risks and upside risks. The result is still a more hawkish tone by the chair relative to the FOMC consensus, as expressed by the median Dot Plot.
We also heard from the Fed’s Michelle Bowman yesterday, and her remarks were predictably more dovish. She tried to convey a greater sense of urgency to act to support the jobs market, which probably mirrors the generalised view of Fed doves.
The US dollar broadly stabilised yesterday, being only slightly offered against the euro as US and eurozone diverged. The US index dropped more than expected, one full point to 53.6. This is still a respectable figure and probably indicates that concerns are somewhat isolated to the job market rather than broader business sentiment.
We retain a moderate bearish bias on the dollar this week, although a quiet day for data and Fedspeak today (only Mary Daly is due to speak) means we could see FX volatility ease further and the dollar hover close to the current level in most G10 crosses.
EUR: Unreactive to Ukraine Headlines, For Now
The euro is hovering around 1.180 in line with our call for this week, and is still unresponsive to geopolitical headlines. President Trump said yesterday that he believes Ukraine can win back all of its territory against Russia. While that is a significant change of tone, markets have been treating Trump’s comments on the matter with caution due to a lack of progress in peace negotiations so far.
If anything, there are downside risks for the euro and even more for higher-beta European currencies as Trump told EU allies to shoot down Russian planes violating NATO airspace.
On the macro side, today’s focus will be on the after strong yesterday. We remain moderately bullish on EUR/USD in the near term, although we doubt it will be smooth sailing to 1.200 from here.
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