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The EUR/USD pair is experiencing a slight decline as market participants weigh various influencing factors. Investor bullishness on the euro, as reflected in the one-month EUR/USD risk reversal, is waning amid anticipation of renewed trade tensions next month. Today, US consumer confidence data will be a key focus.
The dollar index (DXY) has rebounded above 104 as European currencies weaken. A potential US government shutdown was seemingly avoided as the Senate is expected to approve the House bill. While this may provide a minor boost to US equities, larger factors, such as tariff policies and subdued consumer/business sentiment, are in play. The March consumer sentiment release will be closely watched.
The FX options market had foreshadowed the recent EUR/USD increase. However, current indicators suggest fading upside momentum. The looming threat of tariffs in early April contributes to this shift in sentiment. German political developments are also drawing attention. Tariff concerns and German politics pose a downside risk to EUR/USD, while weak US consumer confidence could provide upside.
USD/JPY is trending upward as Japan’s largest labor union agreed to a 5.46% wage increase. This agreement supports the cycle of higher wages and prices, suggesting the market is underestimating the likelihood of a Bank of Japan rate hike in May.
