FX markets remain nervous, if a little calmer, as investors track the latest developments in the Middle East. US jobs data could be slightly negative today, as could any large energy support package from the US Treasury. We’ll also want to see what central bankers make of all this and are interested to hear from the Fed’s Christopher Waller at 1:30 pm CET
USD: Focus Back on the US Today
FX markets remain nervous, and we doubt traders are prepared to run any short dollar balances ahead of possible weekend event risk. Shipping remains at a standstill in the Strait of Hormuz. Every extra day of disruption hits energy production and increases the pressure on and prices to spike higher. For energy markets, the focus is what policymakers can do to alleviate the pain. The US Treasury has already announced a 30-day reprieve such that India can buy seaborne Russian crude. There is also a focus on other measures that the US Treasury could announce today, such as intervention in the oil futures market, where the April 26 US light crude contract is trading $15 above the March 27 contract.
Other measures in the frame include a release from the US Strategic Petroleum Reserve – our commodities team discuss that here. Perhaps the most controversial would be a ’gas tax holiday’, or a temporary suspension of federal file duties on gasoline and diesel. That would be a big story – and probably a dollar bearish one – where lower gasoline prices could take the edge off inflation and allow the to cut, while the long end of the Treasury market could sell-off on the fiscal hit.
Away from energy, today sess the January and . Consensus sees a decent +55k figure after the +130k number in January. A few are warning of a softer, possibly negative number based on the very cold weather in late January and early February. If so, the dollar could get hit briefly, but losses might not endure given the Middle East risk. We are also interested in what the Fed makes of all this. The Fed’s Chris Waller, who dissented in January in favour of a 25bp cut, is on TV at 1:30pm CET today. Most likely he will push the case for a pause, which could provide a little support to the dollar. So clearly, quite a mixed story for the dollar today.
Unless there can be some real political breakthrough that leads to a ceasefire, the dollar won’t be ready to resume a decline anytime soon and the story will remain one of governments trying to handle the fallout of high energy prices – a negative for bond markets around the world. 98.50-99.50 looks the DXY range today, and it looks too early for a sustained sell-off here.
EUR: ECB Re-Pricing Offers the Euro Some Support
Higher energy prices have seen the short-end of money market curves re-priced around the world. Interestingly, one of the largest repricings has emerged in the eurozone, where 1m EUR OIS ESTR, priced one year forward, has jumped 32bp. Repricing in the eurozone curve has actually been a little larger than in the US, meaning that two-year swap rate differentials have narrowed into 95bp – some of the narrowest levels since late 2024. So, while high energy prices are a clean EUR/USD negative, rate differentials are providing a modest offset. This could firm up the 1.1500/1530 area as near-term support.
Today we are on the lookout for German factory orders data which could be showing some signs of ’shovels hitting the ground’ on the back of German fiscal stimulus. Any improvement on the 13% year-on-year levels could be a mild euro positive.
Let’s see whether EUR/USD trades inside yesterday’s 1.1550-1.1650 range and thinks about building a base. But another big leg higher in energy could easily see EUR/USD hit new lows, and we doubt investors will want to chase EUR/USD higher on any soft US data given possible weekend event risk.
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