Old fears about the euro have returned

Buy the rumour, sell the fact. The strengthening of the US dollar is due to expectations of positive labour market statistics, a chance of another easing from the Fed in March fell to 45%, and demand for safe-haven assets in a changing world. Donald Trump does not rule out the seizure of Greenland by force, while Denmark and the rest of Europe are talking about the collapse of NATO, and the US may take control of about 30% of world oil reserves. This allows them to dictate rules to the market.

One way or another, Donald Trump wants to lower rates to 1%, which, given the rapid growth of GDP, contradicts economic theory. However, if the composition of the FOMC changes, everything would be possible. In this regard, the court's verdict in the Lisa Cook case is of fundamental importance. A precedent may be set that gives the president the power to dismiss members of the Federal Reserve.

Donald Trump intends to achieve a further slowdown in inflation. Why not capture the president of Venezuela to accomplish this? Washington is now demanding that Caracas sell it 50 million barrels of oil and cut all ties with Beijing, Moscow, Tehran and Havana. Deglobalisation is intensifying, and the world is becoming increasingly bipolar. In the short term, the greenback can benefit from growing demand for safe-haven assets.

The fall in EURUSD is also due to the vulnerability of the European economy. Following Italian and French inflation, consumer prices in Germany slowed in December from 2.6% to 2%. If the disinflation process gains momentum, the ECB may start to consider resuming its easing cycle, which is bearish for the euro.

According to Chancellor Friedrich Merz, some sectors of the German economy are in critical condition, and the government has not done enough in the eight months since he took office. The French Ministry of Finance announced that the budget deficit would rise to 5.4% if parliament did not compromise. As a result, the risks of a credit rating downgrade increased, and EURUSD moved south.

The strengthening of the US dollar caused gold to retreat. Nevertheless, the precious metal remains in a strong position. This is partly due to the likely increase in central bank activity in the bullion market in a bipolar world.

The FxPro Analyst Team