Trade tensions and inflation weigh on the currency market
The EUR/USD pair depreciated -0.13% from 1.1362 to 1.1347 this week.
Trump's decision to postpone 50% tariffs on the EU until uly 9 was followed by an announcement of talks between senior US and EU officials to negotiate trade deals. This announcement revived market optimism regarding a de-escalation of trade tensions. In France, inflation stood at 0.7% in May, compared to a consensus of 0.9% and after 0.8% in April. This easing of inflation led markets to widely anticipate a cut in the European Central Bank's facility rate of -25 BPS in June to 2.00%. This would be the 8th consecutive key rate cut.
USD/MAD: slight increase this week on the currency market
The USD/MAD pair appreciated by +0.36%, from 9.21 to 9.24 this week.
This evolution was driven by a positive liquidity effect of +0.35%, after the tightening of the Dirham's liquidity conditions. The basket effect, meanwhile, was insignificant this week at +0.01%. The Dirham's liquidity spreads thus tightened by +33 BPS, still at over 3 years low, at -4.37%, thanks to lower import flows related to the decrease of energy prices. These levels are close to the lower band of the Dirham's fluctuation band which stands at -5.0%.
International currency volatility
Uncertainties related to trade tensions, particularly between the United States and its main trading partners (China and the EU), persist and fuel concerns about global economic growth and international currency volatility. As such, significant currency volatility is expected. We recommend traders to hedge their transactions over time horizons from 1 month to 3 months.
