Improving risk sentiment supports the Euro

Key Movers

Ordinarily, strong economic news out of the US would be a positive for the dollar, though if investors perceive this as an encouraging sign for the global outlook, then USD can sell off due to its safe-haven status, which may indeed have been the case on Tuesday. The attempted coup attempt in Russia over the weekend has had little impact on markets, though any additional uncertainty could contribute to the general improvement in risk appetite.

On the Eurozone front, the Euro remained in action on Tuesday after a positive speech from ECB President Christine Lagarde at the ECB Forum of Central Banking. ECB Lagarde conveyed that inflation in Eurozone is extremely high and the central bank is required to make monetary policy sufficiently restrictive to tame price pressures. She further added the effect on inflation from rising wages has recently been amplified. The policymaker also added it is unlikely that in the near future, the central bank will be able to state with full confidence that the peak rates have been reached.

While investors are still not quite pricing in a terminal ECB rate above 4%, as we believe that they should be, expectations for Euro Area rate cuts have, at least, been pushed well into the future.