Dollar Dominates Amid Fed Signals and Eurozone Resilience.

• USD Strengthens Amid Policy Uncertainty: Markets speculate on selective US tariffs despite Trump’s denial, while Congress’ ambitious April deadline for a tax, border, and energy bill hints at domestic policy focus over protectionism.
• Hawkish US Data Boosts Dollar: Strong ISM prices paid, job openings, and services data raise inflation concerns, reducing the likelihood of a March Fed rate cut to below 40%.
• Safe-Haven Appeal: Treasuries weakened, stocks dipped, and the dollar gained as investors sought safety amid economic resilience and inflation fears.
• Fed Signals in Focus: Upcoming FOMC minutes and a speech by Chris Waller may reinforce inflation concerns and support dollar bulls, though correction risks remain.
• EUR Holds Despite Risks: Eurozone inflation rose slightly, but the ECB remains dovish. EUR/USD shows a risk premium, but downside risks tied to US trade policies persist, with support around 1.0300.

USD: Dollar Rebounds Amid Policy Speculation
Recent market movements reflect growing interest in the Washington Post’s report—quickly denied by Trump—that US tariffs may target selected products. Meanwhile, attention is turning to Congress’ ambitious plan to pass a combined bill on taxes, borders, and energy by April. This timeline suggests the administration may prioritize domestic issues, potentially delaying broad protectionist measures. In his first term, Trump pursued fiscal stimulus before initiating protectionist policies, a sequence markets are closely monitoring.

Uncertainty around tariffs has allowed the US macroeconomic narrative to dominate, providing a boost to the dollar. Hawkish economic data released yesterday lowered the probability of a March Fed rate cut to under 40%. Treasury yields softened, equities dipped, and the dollar gained as a safe-haven asset.

Notable data included a sharp rise in the ISM prices paid index, reaching its highest point since January 2023, alongside strong JOLTS job openings and ISM services numbers. Renewed inflation concerns could prompt the Fed to adopt a more hawkish tone, as hinted at in today’s FOMC minutes. Additionally, Chris Waller’s speech may further address lingering inflation risks.

For now, the dollar faces mixed forces: technical risks suggest possible corrections, while Fed hawkishness could sustain bullish sentiment. The DXY may consolidate below 109.0.

EUR: Resilient Despite Risk Premiums
Eurozone inflation ticked up from 2.2% to 2.4% in December, largely due to base effects, while the core rate held steady at 2.7%. Despite an increase in inflation expectations—jumping from 2.1% to 2.4% over three years—the ECB is unlikely to shift its dovish stance. Markets are aligned, continuing to price in four rate cuts this year.

Short-term fair value models indicate a 1.3-1.5% risk premium in EUR/USD, suggesting a potential buy signal. However, the robust US macro story may counterbalance these technical bullish factors. Additionally, the eurozone remains exposed to downside risks from Trump’s trade policies.

Today’s eurozone calendar is light, with only a speech by French central bank governor Villeroy scheduled. Support for EUR/USD is expected around 1.0300.