ECB & Trump lead the week ahead

The Pound has risen fiercely against the safe haven currencies today (USD, JPY & CHF) as positive developments emerge in a Russia-Ukraine peace truce. Europe is proposing a 4-step plan to the US who are playing the 'middle-man' in negotiations and have clearly stepped up efforts to help end the war collectively (what were they doing before is for another day). This is good initial news for all, but there is still a long, long way to go of course.

As Sterling is not deemed a 'safe-haven' currency (neither is the Euro), the Pound moves higher when global risk sentiment fades and lower if things turn sour. Geopolitical tensions are a key driver in risk sentiment, as they determine whether traders and investors want to buy and/or hold more riskier assets.

The UK has a very quiet week ahead with only a few BoE speeches planned and so the Pound will move by events (like the above) occurring elsewhere. GBP v EUR has advanced 5 out of the last 6 weeks and represents fantastic value, of which many of you reading this have acted upon recently.

The pair is undoubtedly for me in overbought territory, but I can see a decent chance of more gains this week (more on this below). GBP v USD remains at fair value and again has an opportunity for going higher this week.



EUR
Very much like the Pound, the Euro has too gained in value against almost all currencies because of the developments with a Europe peace deal for Russia-Ukraine. But, there are two other huge factors this week that are going to move markets and both impact the single currency..

First up is the planned Trump tariffs on Mexico, Canada & China tomorrow. What happens here could have huge ramifications on the Euro-Zone. If tariffs arrive, we can assume they will arrive for the EU and this will weaken the Euro. If they don't or they are less than expected, we could see the Euro rise, as it may imply something similar will happen to the Euro-Zone.

The Euro has been pinned down since Trump declared tariffs are inbound for the EU and as there is a large trade in-balance between the two, this would significantly impair the EU's (and the world) economy and therefore its currency.

On Thursday, we have the latest ECB interest rate decision. Another cut of 25bp is expected and priced in, but as always it's what is said in the press conference after that most are interested in. Of course, there is a small chance the ECB does not cut, in which case the Euro will gain in value.



USD
The Dollar is weaker on the recent Russia-Ukraine events as mentioned above, but this is just the initial phase of things and so not a trend to follow. Trump tariffs will play their part in valuing the USD on release and with a good few US economic data releases, we expect to see a volatile Dollar this week, possibly on the downside.