Suspended animation
Earlier this week, headlines seemed to hold all the makings of a bout of fresh volatility. So far, that volatility has failed to materialise, despite continued fundamental pressures largely political in nature. We have highlighted how a political vacuum in France is likely to raise perceived regional risk within one of Europe’s foremost economies. We have seen this risk materialise with wider credit spreads in the Eurozone, with the yield on French national debt now climbing significantly above the benchmark of the German Bund.
There is a strong negative correlation between such credit spreads and the value of the Euro. Despite spreads rising, so far the Euro has remained resilient. Sure, the Euro has not been able to hold onto its bid following Powell’s Jackson Hole speech, however, it equally hasn’t yet succumbed to the kind of price pressures that can arise when credit spreads widen. The fate for the perceived strength of the trade-weighted Euro will most likely come down to further speculation this week over the fate of the Federal Reserve’s independence under President Trump.
Late on Monday, POTUS posted on his social media platform, Truth Social, a letter declaring the dismissal of Fed Governor Lisa Cook. Cook had been appointed by President Biden to the board of Fed Governors and in recent months had stood alongside Chair Powell in calling for rates to remain on hold. President Trump’s letter of course did not cite Governor Cook’s voting patterns as a reason for her dismissal. However, the surprise action has raised the debate once again of what Trump’s ambitions are for a politicised monetary agenda. Despite these two colossal forces, EURUSD remains rangebound.
Discussion and Analysis by Charles Porter
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