Yesterday’s summit between President Zelenskyy, European leaders, and President Trump in Washington didn’t deliver huge surprises but confirmed that the US is open to providing security guarantees to Ukraine. Such guarantees could pave the way for Ukrainians to consider Russia’s territorial demands, and expectations are now for Russia and Ukraine to meet directly in the next few weeks, both bilaterally and trilaterally with the US.
Currency markets saw modest volatility as news from Washington emerged, with the dollar staying bid and the euro offered. This may reflect some marginal disappointment that the summit did not provide a clearer roadmap to a ceasefire. While the path to peace in Ukraine appears somewhat clearer following last Friday’s and Monday’s summits, markets remain cautious. This is understandable, given that the most challenging negotiations – particularly over territorial issues – are still ahead of us.
US macroeconomic developments remain more important for the dollar, although the calendar is rather light before the Fed’s Jackson Hole Symposium starts on Thursday. In other words, the information that will determine whether Chair Powell delivers a dovish shift is already before us. Fed funds future pricing for September (-21bp) tells us that markets still believe such a shift is coming – although the big jump in July’s PPI inflation has inevitably added a layer of uncertainty.
We suspect the dollar may lose some support as we approach tomorrow’s FOMC minutes – the risk is more than two members voicing openness to cuts – and Jackson Hole. Today, we’ll keep an eye on housing data for July, as well as a Bloomberg TV interview with dovish Fed dissenter Michelle Bowman. Expect a question on whether she will vote for a 50bp cut in September.
Francesco Pesole
