EUR/Eurozone market update

The euro rallied in tandem with all G10 currencies, suggesting that last week we saw more of a "sell the dollar" than "buy the euro" market move.

Since "Liberation Day", the euro has, however, been the best performing major currency in the world, save the Swiss franc, suggesting that Eurozone markets are receiving a significant part of the capital that is fleeing the US. The fact that the common currency continues to rally even after last week’s fairly dovish ECB meeting confirms this.

Speaking in her post-meeting press conference, President Lagarde essentially confirmed that the tariff news had forced the bank’s hand this month, while warning that the trade protectionism could tip the bloc’s economy into a recession.

She also signalled that the ECB was willing to lower rates below the ‘neutral’ level in the face of the current shock.

Markets are currently pricing in a terminal rate below 1.5%, yet currency markets don’t seem to mind the low interest in return for the relative institutional stability of the Eurozone.