Although yesterday the dollar has slightly recovered ground, is on its way to marking its worst start to the year since 2018, and next week will bring with it a number of catalysts that could shake things up further, while the ECB meeting who is watching carefully the euro level at 1,20 dollarsIt's the currency of the United States, but there's no doubt about it: it's everyone else's problem.
The dollar's slip: does Trump want it weak or strong?
Il dollar is languishing near the four-year lows and its renewed weakness is attracting the attention of the central banks, of and to investors and even of White House. just Trump this week has the decline of the greenback has increased saying that the value of the dollar was "Optimal" when asked if the currency had fallen too far. A few hours later, the Treasury Secretary Scott Bessent he straightened out the claim that the United States is for a “strong dollar“Then came the news that Trump wants to chair the Federal Reserve. Trump, the former governor of the Fed, Kevin Warsh, consideredthe most “hawkish” among the candidates on Trump's preferred list, which would fade the possibility of further rate cuts offering a backstop to the dollar.
But analysts are well aware that the Trump administration wants a reduction of the real appreciation of the dollar by almost 50% recorded in the decade preceding his return to power, as part of a push toreduce the trade deficit of the United States. Inevitably, attention has returned to the pre-election documents of Trump's advisor, now governor of the Federal Reserve, Stephen Miran, which raised the prospect of a so-called “Mar-a-Lago Agreement”: a multi-pronged effort to devalue the dollar, which echoes the Plaza Accord of 1985, when the G5 powers coordinated to sell dollars and dampen the tide of Reagan-era inflation.
Investors remain on edge, given that at least since last April, from that “Liberation Day” of Trump on duties, yes. I am distanced from some US assets, in the so-called operation “Sell America”, also because the tensions between Trump and Cuba, Iran, Venezuela, Greenland and Europe have undermined the confidence of some investors in US activities.
At this point the extent and speed of any further declines they could accentuate that movement of disaffection and could also force several central banks, dall'euro area to Asian area, to act to prevent a sharp rise in their national currencies, which could stifle growth.
ECB on alert, but could become seriously concerned if the euro exceeds $1,25
The downward movement of the US currency has necessarily led to an increase in the price of the'euro, ringing alarm bells again at the European Central Bank and'European export industry, but it also has flattered investment portfolios based on the euro and attracted foreign and domestic capital. euro has seen a 3% increase in the last two weeks alone, exceeding the $1,20 mark, the highest level since 2021, although today it has fallen back below that threshold, which is however considered crucial.
La The ECB will meet next Thursday and investors will be alert to any indication of how a stronger euro could affect rates. It is clear that policy makers in Frankfurt are not satisfied: the ECB has the target for theinflation for the Eurozone around 2% and they already predict that it will fall below that level this year and next. But the fear is that a further appreciation of the euro can further reduce inflation.
For now, it is expected that the ECB will maintain its position and traders believe another rate cut is only slightly more likely by the summer. Economists expect Christine Lagarde to continue her mantra of a more conservative approach to monetary policy for now. data-driven without committing to a particular path in terms of rates.
Breaking above $1,20, According to analysts, this is not a big problem for the ECB, which is more interested in speed and magnitude of movements rather than absolute levels. The level of thetrade-weighted euro It rose much less, as the move was driven by the dollar's decline and not by a general rise in the euro. Ross Hutchison, head of eurozone market strategy at Zurich Insurance Group, he stressed that faster movements are needed, above $1,25, to induce a significant reduction in the ECB's inflation forecasts.
Within hours of the euro soaring to $1,20 on Tuesday, the ECB officials, who for months had been signalling that they were satisfied with the current essentially neutral level of interest rates, have begun to complain again about the need for to counter any “excessive” strength of the euro.
A return to the path of easing of interest rates, or even just the threat, would be the first weapon available to the central bank. The president of the Central Bank of AustriaMartin Kocher spoke this week of a possible reaction in case the euro were to appreciate “more and more”, while the president of the Bank of FranceFrançois Villeroy de Galhau said the ECB is “closely monitoring the appreciation of the euro”.
The nods and winks were enough for euro money markets to briefly price in a 25% chance of another ECB rate cut by mid-year, bringing the euro/dollar rate back below $1,20.
The Japanese Front
On the other side of the globe too yen worries investors. The last week the Japanese currency fell to minimum of 18 months in the 159 area against the dollar, while the worries about finances of Japan in view of the early elections, in which the Prime Minister Sanae Takaichi is running an election campaign based on tax cuts. The sharp movement raised fears of direct intervention by the currency authorities on the market: some sources told Reuters that the Federal Reserve The New York Central Bank contacted traders to verify rates, which often signaled imminent intervention in the currency market. The yen then recovered rapidly and powerfully, but continues to be closely monitored by the authorities.
The repercussions on other markets, from the pound to the won. Attention to the Swiss Central Bank
The collapse of the dollar has also caused adverse swings in other currencies in the world. The GBP rose to its highest levels since 2021, while the Swiss franc reached its highest level since 2015. While an intervention on interest rates by the ECB appears unlikely, for the Swiss central bank It's different and the flight from the dollar is pushing the franc on the rise even in comparisons of the euroThe SNB's intervention could be problematic for markets, analysts say, as it typically sells francs for euros, then distributes part of those euros between dollars, pounds and so on, causing cross currents in a number of currencies.
In Asia, the South Korean won and Malaysian Ringgit led gains against the U.S. currency. Dollar weakness helped'gold in its frantic run, almost reaching the level of 5.600 dollars.
