European currencies saw a boost late yesterday after Donald Trump announced he had constructive talks with Vladimir Putin regarding a ceasefire in Ukraine. While this rally may continue somewhat, the looming challenges of possible US tariffs on Europe and persistent inflation in the US, along with elevated interest rates, are likely to limit the upward movement of EUR/USD.
In typical circumstances, the unexpected rise in US inflation should have strengthened the dollar and pressured risk assets. This held true until news broke about Trump’s 90-minute discussion with Putin. Currently, markets appear to be disregarding the implications a shift toward US isolationism could have on European security. In a statement, new US Defense Secretary Pete Hesgeth confirmed that US forces wouldn’t be part of any peacekeeping mission in Ukraine, which would not fall under NATO’s Article 5 protection.
Market sentiment is shifting towards optimism in the region as energy prices drop, benefiting global growth and causing slight dollar weakness. However, the threat of tariffs remains a significant concern, with upcoming executive orders from Trump expected to impact currencies significantly. Meanwhile, today’s focus shifts to US initial jobless claims and producer price index data.
