EUR-USD did not stay above 1.15 for long, instead we saw a broad-based recovery in the US dollar yesterday. A number of factors may have played a role. One of the most important was certainly Donald Trump’s announcement last night that he has ‘no intention of firing Fed Chairman Jerome Powell’. This should, for the time being, ease (justified) concerns about the Fed’s independence, Commerzbank’s FX analyst Michael Pfister notes.
EUR/USD retreats as USD finds temporary relief
“There were a number of reports yesterday suggesting an easing of the trade war, at least in the short term. On the one hand, there were reports that a deal with Japan and India could be imminent, while on the other hand there were cautious signs for a de-escalation on the China front.”
“Trump insisted that Chinese tariffs, currently at 145%, would come down ‘significantly’ and the US Treasury Secretary said he expected a de-escalation soon. So there are plenty of signs of easing, although it should also be noted that the air in EUR/USD was getting thinner towards 1.16.”
“The US administration has given many indications recently that it prefers a weaker US dollar. And Trump is unlikely to change his erratic policy approach. Moreover, if the US real economy weakens as a result of trade policy, he will continue to blame Powell, whether it makes sense or not. We probably need to see more sustained signs of easing before EUR/USD falls more significantly towards 1.10. And after the last few weeks, I have to admit that I find it hard to believe that such signs will appear.”