Markets play deaf to Trumps drums of war

The currency market can sometimes resemble a crowded tavern: voices raised, tankards clinking, but the band in the corner never misses a beat. Trump’s sudden change of tone on Ukraine — suggesting Kyiv can reclaim every inch of lost ground and urging NATO allies to shoot down Russian aircraft — would, in more turbulent times, have cleared the floor. Yet the euro barely twitched, and its higher-beta continental cousins sat unmoved. The geopolitical drums are beating, but traders are tuned to another frequency, their ears pressed more closely to central-bank whispers than to battlefield rhetoric.

Fed Chair Powell once again stepped onto his tightrope yesterday, arms outstretched between the two towers of inflation and employment. His message retained a hawkish shimmer compared with the softer consensus implied by the dot plot, but it was hardly a new tune. He is a circus performer who knows that wobbling too far in either direction will shake the whole tent. Meanwhile, Michelle Bowman reprised the dove’s song, stressing urgency on jobs — her feathers beating against Powell’s firmer frame. Markets took the duet as background music rather than a call to action.

Across the Pacific, Japan’s political stage remains as choreographed as ever. Sanae Takaichi, eager to burnish her credentials in the LDP leadership race, tried to walk back dovish comments from a year ago, insisting that the Bank of Japan alone should handle the levers of monetary policy. It was kabuki, not revolution — a stylized gesture, not a new script. The yen noticed none of it, trading a shade weaker instead as the September manufacturing PMI shrank more than expected. It is challenging to rally a currency on BoJ rate hike expectations when the factory floor is in contraction.

The greenback itself stood relatively still, only slightly bid against the euro. However, on the macro front, the PMI divergence told part of the story as to why the long EURUSD still works; the U.S. composite index slipped by a full point to 53.6, not disastrous but enough to sharpen the focus on employment risk rather than broad business malaise. For all the noise, the dollar has lost its marching rhythm, pausing near current levels in most G10 pairs. Traders with a bearish stance remain in the saddle, but without much conviction to spur the horse forward today.

The euro continues to hover near 1.18, faithfully in line with weekly calls. The irony is thick: on paper, Trump’s dramatic pronouncements should weigh heavily on the single currency and especially on Europe’s higher-beta units. But markets, the forever-see-no-evil machine, discount his proclamations as theatre until proven otherwise.

The IFO survey out of Germany offers the next waypoint after yesterday’s strong PMIs. Optimism persists, though there’s growing unease on the desk that the march toward 1.20 may stumble before our November gates call.

Volatility itself looks spent for now. With no pressing data and only Mary Daly on deck, FX markets may spend the day in drift mode, waiting for the next genuine catalyst to break the tavern’s rhythm and draw traders off their barstools.