- The US dollar is gaining amid persistent inflation risks.
- Traders are betting on the ECB's manual for 2022: sell the euro.
The US dollar has strengthened in five of the last six sessions, driven by increased demand for safe-haven assets and investor confidence that the US economy will fare better than the rest of the world. showed clear signs of stagflation, with price indices rising while overall business activity is slowing. Meanwhile, the European PMI fell to a 17-month low.
According to Joachim Nagel, Donald Trump's attacks on the Federal Reserve are fueling distrust in American institutions and a flight from American assets and the dollar. He cited a 2025 Bundesbank study that found the president's pressure on the central bank led to rising inflation expectations, a fall in the dollar and a weaker dollar.
Unsurprisingly, Donald Trump's threats to fire Jerome Powell if he remained on the FOMC after his term as chairman expired put pressure on the dollar. However, the growing risks of a new escalation of the conflict in the Middle East triggered the opposite process. Instead of fleeing the United States, investors are actively buying American assets. They believe the US economy will do better than the rest of the world.
Traders are following the pattern of 2022, when Europe, overwhelmed by the energy crisis, could not offer any resistance to the United States and fell below parity. No less important is that this was a consequence of the ECB's slower response to rising inflation. The Federal Reserve began raising rates in March, while the European Central Bank did not follow suit until July.
This time, Christine Lagarde and her team intend to act decisively. Bloomberg experts do not expect the ECB to tighten monetary policy in April. However, at the next meeting, the Governing Council will surely signal that it is willing to raise rates.
Meanwhile, Michael's approach to the psychologically significant mark of 160 has triggered a new wave of verbal interventions. Finance Minister Satsuki Katayama said officials are in close contact with their American counterparts 24 hours a day to counter speculators weakening the yen. The authorities have sufficient funds to counter them.
The FxPro Analyst Team
