The US dollar came under pressure on Monday following fresh concerns over Administration attacks on the Federal Reserve.
The Euro to Dollar (EUR/USD) exchange rate jumped to touch the 1.1700 level before settling around 1.1675 with markets also monitoring geo-political developments, notably the situation in Iran.
Scotiabank expects near-term EUR/USD gains to 1.18 with a further advance to 1.22 at the end of 2026.
Late on Sunday the US Department of Justice (DoJ) served the Federal Reserve with subpoena and threatened a criminal indictment over testimony Chair Powell gave to a Senate committee about renovations to Federal Reserve buildings.
Chair Powell strongly criticised the move, reinforcing demands that central bank independence needed to be sustained. Powell was backed by former Fed Chairs Yellen, Bernanke, Greenspan and former Treasury officials.
Scotiabank considers that the latest move will reinforce market concerns over the risk of threats to Fed independence.
The bank also expects that there will be renewed concerns over the appointment of the next Fed Chair.
Scotiabank also noted that there have been signs of a technical shift in markets with a shift in risk reversals in favour of the Euro while yield spreads have moved in favour of the single currency.
