FX Daily: Pushing forward into de-escalation trades in Daily Currencies Ratings 16/04/2026 USD: Aggressive optimism The US dollar index is trading at only around 0.5% above pre‑war levels. Markets have grown more confident that the Middle East crisis is moving toward a resolution, with the US and Iran arranging a second round of talks, and Tehran seemingly willing to halt shipments to avoid testing the US naval blockade. Given how unsuccessful the first round of negotiations was last weekend, these dollar levels seem to embed a fair amount of premature optimism. As such, the balance of risks is increasingly skewed to the upside for USD. Part of yesterday’s dollar weakness was driven by a much softer‑than‑expected March PPI print (0.5% MoM), which helped markets settle around -10bp of Fed easing priced by year‑end. Today, attention turns to the Fed’s Beige Book – an anecdotal survey that often shapes policy thinking. We expect it to point to greater corporate caution, subdued hiring and ongoing inflation pressures, but nothing that would materially shift pricing. Alongside Fed speakers, we will also watch February TIC flows to gauge whether foreign sentiment toward US Treasuries was deteriorating before the war. On another note, it was announced yesterday that Fed Chair nominee Kevin Warsh’s Senate hearing will take place at 10AM ET on 21 April. We see no kink in the dollar’s implied volatility structure, suggesting greater anticipated risk around the event. To us, the risks are probably on the downside for USD and front-end USD rates, considering markets aren’t pricing in a full cut by year-end. While tariffs have fallen into the background of late, Scott Bessent suggested overnight that tariffs could return to their pre-SCOTUS ruling levels in July. That can add a layer of USD bearishness. Francesco Pesole EUR: More ECB speeches today ECB President Christine Lagarde did not offer any new guidance in her US speeches yesterday. She did, however, note that the economy currently sits between the ECB’s baseline and adverse scenarios. If anything, this could be read as a mildly dovish nuance, although it clearly remains incomplete without any reference to inflation dynamics or the policy response. Importantly, other ECB members have not struck a more dovish tone: Dolenc and Makhlouf openly discussed hikes, while Rehn stuck to a more generic note of caution. For now, this should reinforce the view that the ECB will still deliver two rate hikes even under a gradual de‑escalation scenario. That said, the marginal support for the euro is diminishing, with other European DM currencies outperforming EUR so far this week. Lagarde speaks again in DC today, alongside a number of other ECB members. We argued yesterday that for a move above 1.180 in EUR/USD to be sustainable, greater clarity on a peace plan would be needed. That clarity is still lacking, yet markets appear to be increasingly pre‑empting a positive outcome. At this stage, risks look more skewed to the downside, although tangible progress in negotiations could still allow the rally to extend beyond 1.1850 by the end of the week. Francesco Pesole GBP: Bailey staying cautious Expectations for Bank of England tightening continued to abate yesterday, with pricing for December falling 10bp to 34bp. Alongside optimism on a conflict resolution, BoE officials continue to sound comparatively less hawkish than their ECB counterparts. Yesterday, both Andrew Bailey and Megan Greene stressed again th