Hopes that a resolution to the Russia-Ukraine war could be in sight have given way to concerns about the future of European security after the Trump administration signalled that protecting the continent won’t be a US priority.
A recent cascade of erratic comments from Trump directed at President Zelensky has only added to these fears, while triggering a slump in Ukraine’s Dollar bonds, which had been steadily climbing since the US election. European currencies, particularly those in the CEE, have also underperformed their peers so far this week.
Thus far, the impact has been rather limited, however, and some of this retracement may be due profit-taking after an earlier, impressive rally.
The past few days further convince us that President Trump’s remarks, not only those on tariffs, will remain one of the main drivers for the FX market for the foreseeable future.
While his recent comments towards Ukraine are worrisome, we suspect that much of it amounts to theatrical posturing in a bid to force Europe to ramp up its defences.
We continue to hold a relatively upbeat view of most of the CEE currencies, and believe additional gains are possible if sustained peace in Ukraine is achieved.
