The third gap at the start of the week in a row! It’s been a time since we’ve seen anything like this. However, this time the EURUSD closed it much faster than in the previous two instances. Investors are shifting their focus from geopolitics to central bank meetings, impressed by record highs in U.S. stock indices, and keeping the factor of Warsh in mind.
Another attempt on Donald Trump’s life and Iran’s unwillingness to participate in negotiations in Pakistan, where one of Tehran’s key officials was visiting. All of this has increased the demand for the U.S. dollar as a safe-haven asset and caused a price gap at the start of the week for EURUSD.
But the euro quickly regained its footing. When Donald Trump’s political ratings drop, extraordinary events tend to occur that make them rise again.
So far, the occupant of the White House has successfully achieved his goals. Even if it means closing the criminal investigation against Jerome Powell. Sacrifice a little for a big victory. Isn’t this the strategy of Donald Trump? As a result, by the end of April, Kevin Warsh’s candidacy will most likely be confirmed by Congress. He will take on the duties of the Fed chair starting May 15.
And although investors felt that Warsh appeared as a “hawk” in his speech before the Senate Banking Committee, this is not the case. According to the candidate, inflation is moving in the right direction, which means there are grounds for interest rate cuts. Bloomberg experts predict two acts of monetary expansion from the Fed—in October and March—and a tightening of monetary policy from the ECB in June. Divergence is the foundation of the EURUSD rally.
The April FOMC meeting will likely be Jerome Powell’s last as Fed chair. Investors do not expect radical decisions from the central bank, unlike the ECB. It is expected that Christine Lagarde and her colleagues will maintain the deposit rate at the previous level of 2% and signal a rate increase in June. Expectations of “hawkish” rhetoric are supporting EURUSD.
As for geopolitics, all wars come to an end sooner or later. And the current ceasefire is viewed by investors as a path to peace. The risks of escalation, according to the markets, are low. Otherwise, U.S. stock indices would not be rewriting historical highs. The euro’s support in this context cannot be overstated.
