If you knew where you were going to fall, you’d put a straw under it. Christine Lagarde’s statement that the ECB cannot be held hostage by a single data point smoothed the EURUSD drop. The chances of a deposit rate cut in 2026 have dropped to 20%. Coupled with the alarming data on the US labor market, this allowed the main currency pair to find its footing.
The careless rhetoric of the head of the European Central Bank could further bring down the EURUSD quotes. However, Christine Lagarde chose not to do so. According to her, the slowdown in December inflation to 1.7% is due to one-time factors. First of all, the fall in commodity prices. The ECB will not change policy because of one report, it is still in a comfortable position with a deposit rate of 2%.
Investors had fears that the European Central Bank, dissatisfied with the 13% rally of the EURUSD and the 7% strengthening of the euro against a basket of currencies, would use verbal interventions. However, Christine Lagarde, on the contrary, supported the main currency pair. The Frenchwoman said that her growth has already been included in the forecasts of the ECB.
The pressure on the US dollar is created by alarming signals from the American labor market. In December, the number of vacancies decreased to the lowest level since September 2020. According to Challenger, Gray and Christmas, employers laid off 108,000 employees in January, which is the highest level since 2009. The chances of a federal funds rate cut jumped from 60% to 78% in June and from 25% to 40% in April, which helped the EURUSD gain ground.
Without the antics of Donald Trump, Forex returns to its native penates. Volatility is falling, and exchange rates are once again beginning to depend on macroeconomics and monetary policy. The US dollar is strengthening due to a pause in the Fed’s monetary expansion cycle. Its duration depends on the state of the labor market.
However, as soon as the owner of the White House starts playing pranks, volatility soars and confidence in the greenback decreases. He is falling, forgetting about the economy and the Fed’s views on lowering rates. Unsurprisingly, the negative correlation of the USD index with the volatility of Forex quotes has reached an all-time high.
And such swings, given the character of Donald Trump, will be repeated. So that traders don’t get bored, focusing solely on textbooks on fundamental analysis. The President of the United States is like a child: if there is silence in his room, then something has happened. Are we waiting for the storm and the collapse of the dollar? What will be the reason this time? The war in the Middle East?
