The euro is unstable as Trump praises talks with Putin about Ukraine. Bulls on the yen were crushed by a jump in US bond yields after hot January inflation data.
US Inflation and Trump’s Prospects for Talks with Putin on Ukraine Shake the Market
John J. Hardy, Chief Macroeconomic Strategist at Saxo, emphasizes that the last few days have been a real roller coaster for currency traders. The rally on JPY pairs reversed sharply after higher-than-expected data on core US inflation. Furthermore, news of a conversation between US President Donald Trump and Russian President Vladimir Putin on ending the war in Ukraine contributed significantly to the strengthening of the euro compared to most other currencies.
US inflation data led to a sharp increase in long-term yields of US bonds. The yield on 10-year Treasury bonds rose by about 10 basis points, reaching 4.65%. This was due to a surprising spike in the core inflation index, which excluding food and energy, grew by 0.1% year-on-year (exactly 0.054% without rounding) and 0.2% year-on-year (0.152% without rounding). In response, the USD/JPY pair rose, thus reversing earlier losses. It is clear that the yen is highly dependent on US bond yields, so it’s crucial to understand the direction they will evolve in order to predict future USD/JPY movements. However, more time is needed for this.
In short, more data from several consecutive months is needed to understand the direction of US inflation. The most recent data was probably partly misleading due to seasonal factors among other things, leaving the market unprepared and causing an exaggerated reaction. John J. Hardy, Chief Macroeconomic Strategist at Saxo, emphasizes that he is not convinced that we will see further increase in US bond yields.
Turbulent Changes for the Euro in Light of Prospects for Peace in Ukraine
The euro has reacted sharply to potential changes in U.S. policy regarding the post-war situation in Ukraine, leading to its sharp rise. There are several factors that can positively affect the euro. First, the end of the war could remove uncertainty in Europe and bring relief in the form of lower energy prices, especially if Russian energy starts flowing more freely to the West. Second, fiscal issues may have long-term implications.
Board of the Reserve Bank of Australia (RBA) will meet next Tuesday, and the market predicts a high probability of a rate cut due to the unexpected recent drop in inflation.
The instability of the past few days has caused confusion in the market, particularly in the case of the yen, as evidenced by the sharp momentum change over the last three and six days. It’s also worth noting the large positive momentum shift in the euro.
The key will be the outcome of elections in Germany, where Merz of the CDU is considered a potential future chancellor. It will be essential whether he can build a coalition that will enable a more flexible fiscal policy and dispel concerns associated with debt restrictions.
In summary, the talks between Trump and Putin about Ukraine are causing turbulence in the euro, inflation in the US and the prospect of Trump’s talks with Putin about Ukraine are shaking the market, and stormy changes for the euro in relation to prospects for peace in Ukraine are being faced.
Source: https://managerplus.pl/rozmowy-trumpa-i-putina-o-ukrainie-powoduja-turbulencje-na-euro-76536
