While yesterday’s release of stronger than expected US CPI inflation pushed back on Fed rate cut hopes and initially boosted the value of the USD, those gains proved to be short-lived, Rabobank’s FX analyst Jane Foley notes.
The positive impact of the news on the EUR may not last
“While the USD crosses were choppy in US hours yesterday, the theme in Asian hours was predominately one of USD weakness, with EUR/USD briefly being lifted to a high of 1.0440. Overshadowing the latest development in US inflation was the news from President Trump that negotiations to end the war in Ukraine were to begin ‘immediately’ after his phone call with Russian President Putin yesterday. We continue to forecast a move to EUR/USD1.00 around the middle of the year”
“While relief that the war on the Eurozone’s doorstep pushed the safe-haven USD lower and the EUR higher in Asian hours, already that reaction has begin to run out of steam. What is glaringly obvious to European investors is the apparent absence of either Ukrainian or EU politicians in the arrangements that Trump appears to be making towards bringing the conflict to an end.”
“This is despite the implication that it might be up to the EU to fund much of the peace keeping mission and re-building efforts. Furthermore, fears that Trump may already have conceded too much to Putin regarding Ukraine in addition to concerns regarding coherence among NATO countries are all on the rise this morning. The implication is that the path to peace is likely to be a messy process for Europe with outcomes that are not all EUR positive.”
