EUR/USD’s rally stalled after failing to break above 1.18 for three consecutive sessions. The European Central Bank is pushing back against market expectations for a rate hike at the April 29 governing council meeting. ECB President Christine Lagarde cautioned that the energy shock sits between the central bank’s baseline and adverse scenarios. While the IMF trimmed its 2026 Eurozone growth forecast to 1.1% from 1.3%, this still compares favourably to the ECB’s staff projections. The USD’s fading haven appeal amid hopes of a diplomatic solution in the Iran conflict has stalled as US equities fully retraced their post-war losses. 
GBP/USD has similarly struggled to extend gains, stalling just below 1.36. Bank of England Governor Andrew Bailey signalled no urgency to raise rates at the April 30 meeting, while BOE member Alan Taylor warned that markets have overpriced rate hikes. Taylor characterised March’s hold decision as a pause within an easing cycle, noting that policy remains restrictive at the current 3.75% bank rate. Despite the better-than-expected February GDP growth (0.5% MoM actual vs. the 0.1% consensus), the IMF downgraded the UK’s 2026 growth forecast to 0.8% from 1.3% this week.
It is still premature to call an end to the EUR and GBP’s recovery. The greenback remains vulnerable to a relief-driven sell-off if President Donald Trump delivers an off-ramp to the Iran crisis. In contrast to the ECB and BOE, the Fed is not pushing back against rate hikes and is defending its decision against providing strong guidance amid the increased geopolitical uncertainties. Instead, the Fed is resisting political pressure from the Trump administration for rate cuts.
Although the Fed is entering a blackout period next week, into the April 28-29 FOMC meeting, the Senate Banking Committee has scheduled a confirmation hearing on April 21 for Trump’s Fed Chair nominee, Kevin Warsh. The Department of Justice will need to drop its investigation into Fed Chair Jerome Powell for Warsh to assume the Fed Chair on May 15. Even if Warsh takes over the Fed Chair on time, Trump has threatened to fire Powell if he stays on as Fed Governor, which will weigh on the USD’s credibility.
Quote of the Day
“In peace, sons bury their fathers. In war, fathers bury their sons.”
Herodotus
April 16 in history
The Treaty of Shimonoseki was signed in 1985, ending the First Sino-Japanese War.
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