Bank of Japan Governor Signals Accommodative Stance Amid Negative Real Rates 
RBA's Hauser Flags Uncertainty on Rate Settings Amid Iran War Economic Risks 
RBI Clamps Down on Rupee NDF Activity, Banks Face Steeper Losses 
India's Central Bank Holds Rates Amid Iran War Energy Shock 
Chip Stocks Rally on AI Optimism as Oil Price Surge Adds Market Tension 
Bank of Japan's Ueda Flags Low Real Interest Rates as Key Factor in Rate Hike Timing 
BOJ Rate Decision in Focus as Yen, Inflation, and Nikkei Hang in Balance 
U.S. and EU Strengthen Critical Minerals Partnership to Reduce China Dependence 
U.S.-Iran Tensions Escalate as Strait of Hormuz Crisis Disrupts Global Oil Markets 
The chart above shows, how the relationship between EUR/USD and 2-year yield divergence has unfolded since 2012. It is evident that these short rates have been a key influencing factor for the pair as policy divergence became evidence since 2013. As the speculations from extraordinary monetary stimulus went crazy since the beginning of 2014, yield divergence between German 2 year bond (considered as European benchmark) and the US 2 year note went from -0.18 percent at the beginning of 2014 to -0.78 percent by the end of the year and EUR/USD declined from 1.367 to 1.2 by year end.
We see further drop in the EUR/USD exchange rate in 2015 as ECB introduced monetary stimulus but the yield failed to follow that fast, it only started declining as expectations over further stimulus grew and by end of December more than 50 basis points compared to first quarter of 2015 but European Central Bank (ECB) disappointed in December and only to deliver in March 2016.
However, since December, Germany-US yield divergence has moved in a range lacking clear direction as Fed became more cautious than expected. So has the EUR/USD.
We expect, the next major move likely to come when either Fed or the ECB will choose to act further on their diverged path, which again will be data dependent.
