The euro surged to $1.09 on Thursday, hitting its highest level since early October 2024, despite the imposition of 20% tariffs on all imports from the European Union by U.S. President Donald Trump.
Euro gains despite Trump's tariffs
The currency benefited from a broader weakening of the U.S. dollar, as investors reacted to the significant escalation in the global trade conflict, which fueled concerns over global economic growth. Trump's tariff move added further uncertainty to the economic outlook, intensifying worries about a slowdown in both the U.S. and global economies, which in turn placed downward pressure on the dollar.
At the same time, recent economic data offered a glimmer of relief for the Eurozone, showing that inflation eased to 2.2% in March, the lowest level since November 2024. This decline in the headline inflation rate was partly driven by a drop in energy prices and other cost factors, signaling that inflationary pressures in the region might be stabilizing. More notably, core inflation, which excludes volatile energy and food prices, fell to 2.4%, marking its lowest reading since January 2022. This unexpected drop in core inflation, combined with the cooling of broader price pressures, prompted investors to reconsider their expectations for the European Central Bank's monetary policy.
Market expectations for ECB action intensified
With inflation appearing to cool and the risk of an economic slowdown in the Eurozone mounting due to escalating global trade tensions, market expectations for ECB action intensified. Traders now see a growing likelihood that the European Central Bank could lower interest rates by 65 basis points this year, a shift that would help support the region's economy and mitigate some of the effects of the trade conflict. The possibility of a rate cut from the ECB was also bolstered by the softening inflation data, as the central bank has been closely monitoring inflation trends in determining its monetary policy stance.
As the geopolitical landscape becomes more complex, with trade tensions between major global economies intensifying, the outlook for the euro remains closely tied to both the actions of the ECB and the broader global economic environment. If inflation continues to ease and the economic growth trajectory weakens, further dovish signals from the ECB could provide continued support for the euro, even amid heightened uncertainty in global trade.
