- Expectations of ECB rate hike signals support EURUSD.
- Lack of communication from the Bank of Japan will cause USDJPY to rise.
The US dollar initially rose at the start of the week, tracking oil prices, but quickly fell, losing a quarter of a percent against a basket of major currencies since the start of the day. This week, markets are expecting congressional confirmation of Kevin Warsh as chairman of the Federal Reserve, an acceleration in European inflation and hawkish rhetoric from the ECB. With additional support from risk appetite, as evidenced by the rally in key indices, this will be enough to drive EUR/USD growth.
The US Justice Department is closing its criminal investigation into Powell and Senator Tom Tillis is set to endorse Warsh's nomination for Federal Reserve chair. With 13 of 24 Republican votes, the central bank will have a new leader in mid-May. For his part, Warsh is firmly convinced that inflation will slow down in the long term, although he has also stated that he would not lower rates at the request of Donald Trump.
With a firmer foundation for the appointment of the new Federal Reserve chair, markets are beginning to price in a more dovish monetary policy stance. Bloomberg experts predict that the Federal Reserve will cut rates twice in the next 12 months: in October 2026 and March 2027. However, the new president could accelerate this process, which is why we are seeing increased pressure on the US dollar.
Experts surveyed by Bloomberg expect the ECB to make important decisions as early as June. And specifically, the focus is on tightening policies. Markets could get an early signal about rate hikes this week, helping investors prepare. Expectations of hawkish rhetoric from Christine Lagarde and divergence in monetary policy are strongly supporting the pair. Even more so when European inflation is expected to accelerate to 3% in April, the highest level since 2022.
The US dollar, as a safe haven asset, is under pressure from the current rally in US stock indices, which are once again capitalizing on artificial intelligence. The and EURUSD are finding support as investors gradually become accustomed to the geopolitical conflict in the Middle East and believe that a continuation of the ceasefire is more likely than an escalation.
Signals for rate hikes are likely to come not only from the ECB but also from the Bank of Japan. Bloomberg experts also favor resuming the BoJ's monetary tightening cycle in June. However, if Kazuo Ueda makes any mistakes in his communications, he risks resuming his upward trend.
The FxPro Analyst Team
