Euro rallies above $1.10 amid global trade tensions

The euro climbed back above $1.10, approaching its strongest level since October 2024, as escalating global trade tensions and renewed signs of political stability within the eurozone buoyed the single currency.

Euro rallies above $1.10 amid global trade tensions

On Wednesday, China announced it would raise tariffs on all U.S. goods to 84%, significantly higher than the previously signaled 34%, in a sharp response to Washington’s latest tariff salvo—raising duties on Chinese imports to an aggressive 104%. The dramatic escalation has rattled global markets, prompting a broad shift in sentiment as investors rotated out of traditional safe-haven assets like U.S. Treasuries and the dollar in favor of alternatives perceived as less exposed to the trade crossfire. In contrast, Europe has benefited from a temporary reprieve in political risk. Germany’s CDU/CSU bloc and the SPD reached a long-anticipated coalition agreement, paving the way for Friedrich Merz to assume the chancellorship next month. The prospect of a stable, center-right-led government has helped bolster investor confidence, especially after months of policy uncertainty and fragmented coalition talks. The resolution is seen as a positive signal for fiscal cohesion and structural reform within the eurozone’s largest economy.

ECB set to cut rates

On the monetary front, the European Central Bank is widely expected to deliver a 25 basis point rate cut at its upcoming meeting, marking the start of a cautious easing cycle aimed at supporting flagging growth. Inflationary pressures have continued to ease, giving the ECB room to maneuver. Markets are currently pricing in at least two additional rate cuts by the end of the year, with growing speculation that a third move could be on the table if economic indicators—particularly in manufacturing and consumer demand—continue to deteriorate. The euro’s recent strength also reflects broader diversification away from the U.S. dollar amid rising geopolitical instability. As capital flows rebalance, the euro is increasingly seen as a relatively resilient option within the developed market currency landscape, especially if political calm holds and the ECB manages a measured policy path.