Citi Warns Rising Geopolitical Risks Cap Euro Support Amid ECB Hawkish Turn

Citi Research warns of rising geopolitical risks for Europe through the NATO channel, which could limit support for the euro even as the European Central Bank turns more hawkish. The firm pointed to several recent developments driving market price action, including CIA Director Ratcliffe's trip to Moscow in late August and Russia's continued escalation with NATO countries.

Russia has been accused of escalating tensions with NATO, citing drone attacks on German airports, incursions into Estonia that triggered NATO's Article 4, and other reported incidents. Citi notes it is not suggesting a Russian invasion of a Baltic country, but rather the potential for further 'tests' of NATO countries.

The firm also attributes recent energy price increases to President Trump's acknowledgement that Iran-related energy risk could persist through midterm elections. This suggests limits to any relief trades from potential peace deal announcements.