MUFG: EUR/USD dangers beneath parity this quarter as Trump's commerce focus shifts

MUFG notes that Trump’s inauguration speech, with a heavier give attention to immigration than commerce, has decreased instant dangers for EUR/USD to drop beneath parity in Q1. Nonetheless, trade-related uncertainties persist, significantly round potential tariff actions later this 12 months.

Key Factors:

• Commerce Coverage Focus and Market Expectations:

  • Trump’s speech emphasised immigration over instant commerce measures, dampening market fears of aggressive early tariff actions.
  • Commerce evaluations have been scheduled for key agreements (e.g., Section 1 take care of China, USMCA, and export controls), with findings due by April 1.

• European Publicity to Commerce Dangers:

  • Europe faces potential tariff threats, significantly linked to pure gasoline purchases from the US, although specifics stay imprecise.
  • The dearth of instant motion on Europe and China lowers the urgency of trade-related EUR draw back dangers in Q1.

• FX Market Response and USD Positioning:

  • The USD rally suggests markets had been pricing in additional aggressive commerce strikes.
  • With ambiguity across the timing and nature of tariff bulletins, USD promoting is probably going capped, however instant EUR/USD draw back dangers have diminished.

Conclusion:

Whereas the long-term risk of tariffs and commerce tensions stays, the decreased immediacy of aggressive US actions has lessened the danger of EUR/USD breaking beneath parity this quarter. Markets will probably shift their focus to the April 1 overview date, the place the commerce narrative may reignite.

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This text was written by Adam Button at www.ubaidahsan.com.



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