The euro extended its upward momentum on Thursday, edging closer to the $1.11 mark and hitting its highest level since late September 2024. The rally came on the heels of the European Union’s decision to impose a 90-day suspension on new tariffs targeting U.S. goods, a strategic move aimed at creating space for renewed trade negotiations and de-escalating transatlantic tensions.
Euro soars on relief from tariff pause
The EU’s announcement closely followed President Trump’s shift in trade policy, which saw a reduction in tariffs — down to 10% — on imports from countries that had refrained from retaliating against his initial trade measures. However, the administration simultaneously escalated the trade conflict with China, hiking duties on Chinese imports to a staggering 125%, up from 104%, in a move that reignited concerns over supply chain disruptions and global trade fragmentation.
While the tariff freeze between the U.S. and the EU provided a temporary reprieve from the specter of a broader trade war — offering some relief to financial markets and calming inflationary fears — it also injected fresh uncertainty into the macroeconomic outlook. Market participants remain wary that the fragile détente could unravel, particularly as the geopolitical climate remains tense and policy unpredictability persists.
Money markets recalibrated their expectations
In the face of these developments, money markets swiftly recalibrated their expectations for the trajectory of European Central Bank (ECB) monetary policy. Futures markets are now pricing in a year-end ECB deposit facility rate of 1.8%, up from 1.65% just a day earlier and slightly below the 1.9% rate forecast last week. The shifting rate outlook reflects both the euro’s strength and the evolving inflation and trade dynamics. Additionally, the probability of a rate cut as soon as April dropped to 90%, down from a near-certainty just 24 hours earlier, as traders reassessed the ECB’s need to act amid more stable global conditions.
