US dollar’s crisis of confidence and EUR/USD’s potential path to 1.15
Press Hub UCapital
Share:
Recent U.S. trade policies have eroded faith in the dollar’s safe-haven status, despite its long history of resilience during economic downturns. The greenback has weakened as escalating tariffs drive investors to question America’s growth prospects and turn elsewhere for stability. Measures targeting traditional allies have intensified stock market sell-offs, fueling speculation that the U.S. economy could be at risk of a sharper recession.
Market participants highlight the potential for rising inflation within the United States, coupled with slower growth, if tariffs remain high. The Fed appears inclined to keep monetary policy steady, anticipating a push in the core PCE to around 4.5%. In contrast, some analysts foresee deeper rate cuts by the European Central Bank if trade conflicts spill over into Europe’s economy and cheap Chinese imports flood EU markets. This divergence leaves the door open for EURUSD to strengthen in the near term, particularly if capital flows out of U.S. equities and into European assets continue. Citi projects a move toward 1.15, given predictions of an 11% drop in U.S. stock indices and a more modest 5% decline in European counterparts.
Still, the future trajectory depends largely on the EU’s ability to negotiate with Washington and possibly implement fresh fiscal stimulus to bolster its economy. A breakthrough in talks may attract greater inflows into the eurozone, propelling the EURUSD pair higher. However, a full-blown global trade war would likely sap confidence worldwide, potentially undermining the euro along with other risk assets. Historical precedent shows the dollar often shines in recessions, but unorthodox U.S. policies and shifting alliances could hamper its appeal this time.
From a tactical trading standpoint, signs of life in the U.S. economy might yet buoy the dollar, especially if robust job data or an S&P 500 rebound revives optimism. Technical indicators suggest that EURUSD must hold above 1.1055 to maintain bullish momentum. Failure at that threshold could prompt a wave of profit-taking and fresh short positions, reflecting renewed dollar buying if market participants believe the U.S. can weather tariff-related turbulence better than Europe. In this environment, caution is key, as market sentiment can quickly change if the tariff narrative shifts or if economic indicators surprise on either side of the Atlantic.
Market participants highlight the potential for rising inflation within the United States, coupled with slower growth, if tariffs remain high. The Fed appears inclined to keep monetary policy steady, anticipating a push in the core PCE to around 4.5%. In contrast, some analysts foresee deeper rate cuts by the European Central Bank if trade conflicts spill over into Europe’s economy and cheap Chinese imports flood EU markets. This divergence leaves the door open for EURUSD to strengthen in the near term, particularly if capital flows out of U.S. equities and into European assets continue. Citi projects a move toward 1.15, given predictions of an 11% drop in U.S. stock indices and a more modest 5% decline in European counterparts.
Still, the future trajectory depends largely on the EU’s ability to negotiate with Washington and possibly implement fresh fiscal stimulus to bolster its economy. A breakthrough in talks may attract greater inflows into the eurozone, propelling the EURUSD pair higher. However, a full-blown global trade war would likely sap confidence worldwide, potentially undermining the euro along with other risk assets. Historical precedent shows the dollar often shines in recessions, but unorthodox U.S. policies and shifting alliances could hamper its appeal this time.
From a tactical trading standpoint, signs of life in the U.S. economy might yet buoy the dollar, especially if robust job data or an S&P 500 rebound revives optimism. Technical indicators suggest that EURUSD must hold above 1.1055 to maintain bullish momentum. Failure at that threshold could prompt a wave of profit-taking and fresh short positions, reflecting renewed dollar buying if market participants believe the U.S. can weather tariff-related turbulence better than Europe. In this environment, caution is key, as market sentiment can quickly change if the tariff narrative shifts or if economic indicators surprise on either side of the Atlantic.