The large information during the last month has been European leaders embracing fiscal stimulus. The prospect of looser eurozone fiscal coverage and comparatively tighter ECB coverage (we now assume the terminal charge is 2.25%) has prompted a totally justified bullish re-appraisal of the euro. However large US tariffs might rain on the parade.
Geopolitical occasions have pressured us to revise our EUR/USD profile. Briefly, President Trump’s withdrawal of Europe’s safety umbrella, Europe’s response of fiscal stimulus and the re-rating of the ECB profile signifies that EUR/USD is unlikely to commerce all the way down to 1.00/1.02 in any case. We see 1.05-1.10 as the brand new buying and selling vary.
April will curb enthusiasm for the euro if the US imposes far-ranging ‘reciprocal’ tariffs on Europe. There’s a good likelihood of common tariffs as Washington seeks to stage the worldwide taking part in area for commerce and tackle the $1.2tr annual items deficit.
Nevertheless, the greenback will keep susceptible – particularly to information on job losses and softening consumption tendencies.
USD/JPY: Softer US macro and hawkish BoJ mix
USD/JPY has been on the forefront within the adjustment of US development prospects. This yr’s 5% fall within the S&P 500 and the 50bp extension of the anticipated Fed easing cycle has seen USD/JPY commerce nicely beneath 150. Thus far this has largely been a defensive, US-led transfer. However we predict it’s too early to name a US recession and a home name for larger US 10-year yields later this yr ought to show USD/JPY supportive.
However the second quarter could possibly be a tricky time for danger property as Trump pushes by way of with tariffs. On the identical now we have a non-consensus name that the Financial institution of Japan will tighten 25bp in Might
145-150 appears to be like the approaching buying and selling vary.
GBP/USD: 26 March spring assertion might undermine GBP
The re-rating of European currencies has dragged GBP/USD larger. Essential for this pattern will probably be whether or not the German parliament approves the EUR500bn infrastructure invoice on this present parliament – deadline 25 March. If not, a number of the current GBP positive aspects will unwind.
One of many large occasion dangers for GBP would be the 26 March UK Spring assertion. This could possibly be a destructive story because the Chancellor seeks to chop spending and meet fiscal guidelines. Tighter fiscal coverage might see a dovish re-appraisal of BoE coverage and hit the pound.
1.25-1.30 now appears to be like the risky vary as GBP/USD is buffeted by each home and worldwide elements.
EUR/JPY: Draw back dangers over Coming Months
EUR/JPY has defied its usually optimistic correlation with international fairness markets because the implications of European authorities spending ripple by way of markets. Assuming German fiscal stimulus is handed, the euro ought to stay higher supported and will get a carry if the ECB pauses its chopping cycle in April.
Nevertheless, April ought to show a rocky month for danger property because the US pushes forward with tariffs. Importantly, Washington wants the tariff revenues to assist its tax-cutting agenda. This argues that tariffs will not be negotiated away as rapidly as some counsel.
EUR/JPY must also be restricted by the Financial institution of Japan story, the place hikes anticipated in Might and October will hold the yen in demand.
EUR/GBP: Unstable in ranges
EUR/GBP appears to be like prone to proceed to bounce round in ranges. The primary large, optimistic occasion danger is the 26 March UK Spring assertion. Spending cuts might ship EUR/GBP to 0.85. We must always see the US announce some important tariffs on 2 and three April. EUR/GBP usually will get hit on tariff information given the UK’s smaller items publicity to the US when in comparison with the eurozone’s giant and problematical commerce surplus with the US.
Politics may even have some bearing over the medium time period. The UK Labour authorities must display the UK’s improved development potential and might achieve this by nearer ties with Europe.
Consensus expects EUR/GBP at 0.83 in 1Q26 and a 0.80-86 vary.
EUR/CHF: European development profile prompts revisions
Fortuitously for the Swiss Nationwide Financial institution, the re-rating of eurozone development prospects and what it means for ECB coverage now imply that the SNB may have much less must take the coverage charge again into destructive territory. The market now costs one last SNB reduce to 0.25% this summer season. With Swiss CPI getting very near zero, the SNB will stay in a dovish mode and can resist CHF power.
Our eurozone crew are but to make some main upward revisions to development prospects – which means that we’re not but able to name a serious re-appraisal in EUR/CHF to the 1.00/1.05 space.
However upside dangers to EUR/CHF are constructing ought to European fiscal stimulus arrive in its entirety – or a Ukraine ceasefire materialise.
EUR/NOK: Norges Financial institution reduce unsure
Norway’s inflation jumped unexpectedly in February. Headline CPI rose 3.6% year-on-year and underlying CPI to three.4%, the most well liked prints since second quarter 2024.
Norges Financial institution had repeatedly signalled a charge reduce on 26 March, however markets and consensus at the moment are break up. It’s going to be a really shut name, and whereas we nonetheless assume a reduce is marginally extra probably, we count on it to be accompanied by a hawkish narrative.
The Norwegian krone has discovered assist from the hawkish repricing, however delicate commodity costs are most likely stopping it to rally rather more on the eurozone’s development re-rating and Ukraine peace deal hopes. We see a broadly secure EUR/NOK forward.
EUR/SEK: Krona’s rally appears to be like overdone
The Swedish krona’s stellar efficiency has despatched EUR/SEK into marked undervaluation territory (round 2.5% in our estimates). That implies SEK is at present embedding a giant deal of positives, and new rallies will probably be exhausting to maintain.
The Riksbank might not wish to rule something in or out, however hotter inflation and an improved EU outlook counsel a maintain on the March assembly. We have now modified our baseline view and forecast no extra charge cuts by the Riksbank.
We count on a worsening of EU sentiment (to which SEK has the next beta than EUR) on the again of US tariffs in April. That may favour a reset larger in EUR/SEK, we predict round 11.10-11.30.
EUR/DKK: Nonetheless very regular
Greenland’s political occasions didn’t affect DKK, and threats to the peg with the euro stay very low.
EUR/DKK has been below some very modest strain whereas remaining very near the 7.46 central peg stage.
We see no cause to count on a divergence from the current stability in EUR/DKK, and we subsequently count on the Danish central financial institution to maintain chopping in step with the ECB (we predict solely as soon as extra in 2025) and chorus from intervening within the FX market.
USD/CAD: Commerce tensions can escalate additional
All indications are that the US-Canada commerce spat can hold escalating. Neither Canadian Conservatives nor Liberals (now led by Mark Carney) are pitching a soft-touch strategy on commerce forward of probably elections this spring, and Trump has responded aggressively to retaliations from Canada.
The Financial institution of Canada reduce charges once more in March. We count on just one further reduce by the BoC, as inflationary dangers are rising and there could also be tolerance for a slowdown if largely attributable to tariffs.
Our choice stays for USD/CAD to commerce round or above 1.45 within the second quarter because the USD recovers some floor and the commerce danger premium stays in place. A gradual decline to 1.40 might solely be a narrative for the second half of 2025.
AUD/USD: Profile revised larger
We have now adjusted our AUD/USD profile larger in step with our up to date, much less bullish USD view. Nevertheless, the stability of dangers stays tilted to the draw back for AUD – which is the popular China proxy commerce in G10 – as commerce sentiment deteriorates.
Markets (and ourselves) are torn between two and three cuts by the Reserve Financial institution of Australia this yr. Our baseline forecast is for 3 cuts however admit that the needle is popping in the direction of a much less dovish situation as development and inflation are proving stronger than anticipated.
We count on explorations beneath 0.62 in AUD/USD all through 2Q as tariff dangers peak. However, if 2H25 begins to carry commerce pressure de-escalation, AUD ought to be among the many largest winners.
NZD/USD: Reserve Financial institution of New Zealand set to chop in April
Markets are pricing in one other 75bp of RBNZ easing this yr and a 3.0% terminal charge. We’re barely much less dovish and forecast 50bp as inflation might show a difficulty down the highway.
Nonetheless, a 25bp discount on 9 April stays slightly probably. The one key information launch earlier than the assembly is the 4Q GDP, which is anticipated at 0.4% QoQ following two quarters of contraction. 1Q CPI and employment information are due in mid-April and early Might, and now we have much less conviction on one other reduce on 28 Might.
We don’t see a really compelling case for AUD-NZD divergence within the coming months, and now we have revised our NZD/USD numbers larger in step with AUD/USD.
Disclaimer:This publication has been ready by ING solely for data functions no matter a selected person’s means, monetary state of affairs or funding goals. The knowledge doesn’t represent funding suggestion, and neither is it funding, authorized or tax recommendation or a proposal or solicitation to buy or promote any monetary instrument. Read more
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