Central Banks Taking the Initiative

Markets are reacting to shifting central bank dynamics: expectations of hawkish ECB signalling and a pickup in euro-area inflation (forecast at 3% for April) are underpinning EURUSD, while prospects of a more dovish Fed under Kevin Warsh are weighing on the US dollar. Bloomberg forecasts two Fed cuts (October 2026 and March 2027), adding to dollar pressure. Risk appetite — evidenced by a rally in the S&P 500 — further supports euro strength. The Bank of Japan’s potential communication miscues could lift USDJPY, introducing upside risk for the dollar. Overall, central-bank positioning and upcoming policy signals are the dominant drivers for FX and risk assets this week.