The euro climbed above $1.04 as the U.S. dollar weakened, with investors assessing the potential economic consequences of President Trump's trade tariffs. These tariffs, along with the possibility of additional U.S. levies on the European Union, have fueled concerns over global economic growth and trade stability.
Euro rises but downturn likely ahead
The escalating trade tensions were further heightened as China retaliated with its own tariffs on U.S. goods, intensifying the standoff between the world’s two largest economies.
Meanwhile, in the Eurozone, business activity rebounded after two months of contraction, signaling a tentative recovery. The European Central Bank (ECB) recently cut interest rates in an effort to support growth and indicated that further reductions could be on the table as early as March. However, fears remain that U.S. tariffs could contribute to deflationary pressures in the region, potentially pushing the ECB toward even more accommodative monetary policies.
Market expectations for the ECB’s deposit rate have shifted
In response to these developments, market expectations for the ECB’s deposit rate have shifted, with investors now anticipating a decline to 1.87% by December. Additionally, bond yields in the Eurozone have remained under pressure as investors continue to price in a prolonged period of low interest rates. The uncertainty surrounding trade policies and the potential for further monetary easing has led to increased market volatility, with investors closely monitoring policy decisions on both sides of the Atlantic.
