It certainly has not been a major market driver, but one of the background stories in financial markets has been what falling US commercial real estate prices mean for those banks who are exposed. One German covered bond issuer has been in the news and this name was downgraded by S&P yesterday. Maureen Schuller, ING’s Head of Financials Sector Strategy, discusses the covered bond market here. It seems too early to talk of any systemic issue yet, but we should certainly monitor this sector as it seems 2024 will be the year that lower US commercial real estate prices hit the value of collateral.

It is hard to say that this issue has been weighing on the euro. Instead, higher US rates have been the driver of the lower EUR/USD. We cannot see a strong case for an immediate reversal higher in EUR/USD, but like our colleagues in the Rates Strategy team, these relatively high levels of US rates and the dollar should present opportunities this month for corporates and investors to better position for Fed easing this summer. The market currently prices around 100bp of Fed easing this year and we struggle to see the market pricing in anything less than three Fed cuts this year.

A narrow 1.0700-1.0760 range may again be on hand today.

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