RECAP
Yesterday, USD-selling remained persistent as market participants adjusted their expectations regarding the Federal Reserve’s interest rate trajectory. Due to mounting concerns about the US economy, markets have shifted their outlook, now anticipating three rate cuts this year—an increase from the previously expected two rate cuts just a week ago. The first of these cuts is now predicted to occur in June, rather than in September.
Meanwhile, the Euro benefitted from Germany’s announcement to amend its constitution, allowing defence spending to bypass the limits on fiscal expenditure. Additionally, the establishment of a EUR500bn infrastructure fund contributed to the positive sentiment surrounding the Eurozone’s economic prospects.
As a result, markets no longer foresee the need for three additional rate cuts by the European Central Bank (ECB) this year.
On the trade front, US Commerce Secretary Howard Lutnick’s comments about potential compromises with Canada, Mexico, and China helped ease recent concerns over tariffs, providing reassurance to markets that tensions may be de-escalating.
