Concerns about the US credit market have eased further since the weekend, prompting a hawkish repricing in the Fed curve and justifying a stronger dollar. EUR/USD may slip all the way to 1.160 in the next few days, but it may require a hot US CPI print to extend the drop. Elsewhere, Japan’s new PM Takaichi was confirmed by parliament this morning
In this CEEMEA Economics Analyst, we provide greater detail in support of our forecast for aggressive easing in policy rates over the coming 12 months.
Latest round of tariffs will come into effect on 5 and 9 April. Donald Trump announced the imposition of a 10% baseline tariff on all imports to the United States from 5 April. For countries with which the United States has the biggest trade deficits, higher, individualised reciprocal tariffs will take effect on 9 April.
At 0.76 (vs 0.25 last week) our Risk Index has jumped decisively back into risk-averse territory. The Index bounced off its 100-day moving average suggesting a sustained reduction in investor risk appetite.
Risk assets were down again on Monday in the run-up to what Trump has dubbed Liberation Day on 2 April, when he is due to announce a raft of reciprocal customs tariffs, which would see the trade war take on a global dimension.
At 0.61 (vs 0.77 last week) our Risk Index has retreated, indicating a little less investor risk aversion. The Index remains above its 100-day moving average, suggesting a sustained increase in risk aversion.
ur US economists recently revised their growth forecasts and are now below consensus for the first time in almost three years. At the same time, our European economists responded to the unprecedented German spending plans by upgrading their Euro area growth forecasts despite the looming tariff threats.
The major FX rates have remained relatively stable at the start of this week in contrast to the deepening sell-off in the equity markets. One of the biggest movers yesterday was the Nasdaq composite index which fell sharply by 4.0% and extended its decline since the high in December to almost 14%.
Busy end of week with European defence push, ECB monetary policy decision, US tariff pause and NFP. No let-up in the news flow as the week draws to an end. Friday will be marked by the publication of the February Employment Situation Report, with our US economists expecting 180 thousand job creations (see NFP Preview), while Thursday’s session was punctuated by an abundant news flow:
The USD declined significantly over the last four weeks with the biggest gains for the SEK and the JPY, while AUD, CAD and NZD lagged behind. EM currencies were on balance stronger as well but with more dispersions.
• As we had expected, the EURGBP spike in January—which was sparked by UK-idiosyncratic risks—has reversed, and we expect the pair to edge lower over the year toward 0.82.
