As you can see from my commentary on Wednesday, the European trading session was filled with up and down economic volatility. The EUR/USD cross saw it difficult to increase, remaining under the 1.0800 level. This announcement arrives in the wake of renewed global demand for the US Dollar after US President Donald Trump’s recent tariff threats sent the world scrambling. In the meantime, the EURPLN also made a small move in the right direction, decreasing to 4.16. The Hungarian long-end of the curve experienced the largest decline. It declined by as much as 15 bps on the week. Meanwhile, in comparison, countries like Japan and Sweden only experienced a few months of severe turmoil in their markets.
US Dollar Demand Surges Amid Tariff Concerns
The EUR/USD currency pair is struggling to hold above the 1.0800 level. This battle comes from a global resurgence of demand for the US Dollar. As President Trump’s recent tariff threats clearly demonstrate, such actions have consequences, sending ripples through the global markets and forcing traders to reconsider their positions. In recent months, higher tariffs have raised fears of trade wars and their potentially adverse impacts on overall economic growth. As a direct result, investors have started flocking to the relative safety of the US Dollar.
As a result, the demand for the Euro has diminished, leading to its depreciation against the US Dollar. Traders will be watching closely to see how this evolves on that front. Getting additional certainty on the tariff front would make a big difference in changing market fundamentals.
Mixed Market Reactions Across Europe
The EUR/USD currency pair came under substantial pressure. At the same time, the EURPLN fell under 4.16, reflecting solid appreciation in that currency pair as well. This indicates that, at least so far, the Polish market has a level of resilience compared to a lot of Europe’s other markets, which are undergoing much more uncertainty.
Among other central European countries, Hungary’s long-end of the curve fell sharply this week. It went down by 15 basis points. This movement is indicative of a broader change in investor sentiment and expectations about future changes in monetary policy. Conversely, volatility across the rest of Europe stayed at depressed levels, demonstrating the different responses to global shocks.
UK Inflation Figures and Future Expectations
In the UK, inflation figures released today demonstrated a slight decrease in February. The year-over-year Consumer Price Index (CPI) inflation came down to 2.8% from January’s 3%. The Office for National Statistics (ONS) recorded this shift in a way that matches what we should expect as inflationary pressures begin to ease.
The new governor has already signaled that the inflation path this year could exceed earlier expectations. As it is, the attainment of the country’s inflation goal might be pushed back past this year. The updated outlook indicates that inflation will be higher than previously forecast — a development that will require close monitoring and a readiness to adjust policy as needed.