Life does not stand still. The world is changing, and that in turn is a source of market shocks. Canadian Prime Minister Mark Carney has warned of the collapse of the old system of international relations. German Chancellor Friedrich Merz says it has been shaken. In such an environment, reversals in EUR/USD are not surprising. HSBC says the most interesting phase may be just beginning.

The US dollar started 2026 on a strong note. Pessimistic expectations, a stabilizing labor market, and the strength of the US economy supported the currency. However, tariff threats from Donald Trump allowed EUR/USD to regain losses made earlier in January within a matter of days. If investors breathe a sigh of relief at the White House's reluctance to impose new import duties, conditions could revert to what they were before.

Markets expect two rounds of Fed easing in 2026, and not before June. Until then, rates are likely to remain high, and the wide differential with borrowing costs elsewhere will continue to attract capital into the United States and support the dollar.

Investor Rate Expectations Dynamics

Nevertheless, Donald Trump's unpredictability and the policy uncertainty it creates for the White House will keep delivering fresh market shocks. Investors are watching closely for the next Fed chair appointment. After the president said he wanted Kevin Hassett close by, the frontrunner's prospects fell sharply. The main candidate for the role is now former FOMC governor Kevin Warsh. Notably, while on the Committee, he built a reputation as a hawk. He has since softened his stance to appeal to Republicans.

It is quite possible that Christopher Waller, a market favorite, could become the new chair. That outcome would be welcomed by investors and would, in effect, end Mr. Trump's efforts to undermine Fed independence.

Ranking Dynamics for Next Fed Chair

The president has not given up on those efforts. The Supreme Court complicated matters for him by refusing to sack Lisa Cook. Had the court ruled differently, the president's pick — someone such as Steven Miran, who has advocated a 150 basis?point cut to the federal funds rate — might have been appointed.

Another vacancy could arise if Jerome Powell, after stepping down as chair in May, decides to leave the FOMC entirely. If he remains, Mr. Trump has promised to make his life difficult. Threats have long failed to deter the central bank chief, and they may even prompt him to remain on the Committee.

Technically, on the daily chart, the first attempt by bears to trade the inside bar has failed. Nevertheless, the bulls' inability to push the rate back above the pivot level at 1.1715 could signal their weakness and provide a reason for sellers to step in.