Disinflation is gaining momentum across the Eurozone, yet service prices continue to surge, particularly in France. As inflation dynamics shift, various central banks are adjusting their strategies to address economic growth and currency valuations. The Bank of Japan (BoJ) raised interest rates at the end of January, propelled by robust economic data, and anticipates further above-average growth leading to additional rate hikes in the coming quarters. Meanwhile, the European Central Bank (ECB) is on a different trajectory, with expectations of further interest rate cuts that could strengthen the yen.
US President Donald Trump's tariff threats have lost their initial impact. Market participants now interpret them as tactical negotiating maneuvers rather than immediate economic threats. Despite Trump's suggestion of a 25% tariff on eurozone imports at the end of February, the euro only saw a slight depreciation against the US dollar.
The euro remains caught in a volatile sideways phase against the US dollar, influenced by these geopolitical and economic developments. The Swiss National Bank (SNB) has been defending the 0.93 level against the euro for months, attributing the strength of the Swiss franc more to eurozone weaknesses and uncertainties than to domestic economic prowess.
Inflation likely eased in February, aided by a significant cut in regulated electricity prices in France. However, service sector price increases persist, adding complexity to the inflationary landscape. In response, the ECB is expected to implement larger interest rate cuts compared to the SNB, potentially benefiting the Swiss franc's relative strength.
The BoJ, on the other hand, may pause its monetary policy normalization due to unpredictable tariff decisions from Trump regarding Japanese imports. This uncertainty adds another layer of complexity for global financial markets. The single currency fell by 8% against the US dollar in the last quarter of 2024 due to tariff concerns alone.
Bitcoin (BTC) has seen a modest recovery, trading around $86,000 after experiencing a near 15% drop earlier this week. This decline was attributed to ongoing tariff news from President Trump and waning institutional demand.