Is the EUR/USD en Route to Parity – And Lower?
2025.02.10 03:53
Is it possible for to reach 0.95?
The euro declined to around $1.03 under pressure from a stronger U.S. dollar after President Donald Trump announced new global tariffs on steel and aluminum over the weekend. This move further weakened the currency, accentuating expectations of a wider gap between U.S. and European interest rates.
The robust employment situation in the U.S. supported the Fed’s decision to hold rates, in contrast to the ECB’s recent rate cut and the indication of possible further easing in March. In addition, markets fear that U.S. tariffs could adversely affect deflation, raising expectations for deeper cuts by the ECB, with a projection of a deposit rate cut to 1.87 percent by December.
In response to U.S. threats of trade tariffs, German Chancellor Olaf Scholz said the EU is ready to react “within the hour.” Bernd Lange, head of the EU trade committee, also said the bloc is willing to lower its 10 percent tariff on vehicles to match the 2.5 percent U.S. tax in order to avoid a trade war.
The U.S. dollar continued its strong performance in international currency markets with the recent announcement of positive labor market data in January. The EUR-USD exchange rate fell again below 1.018, reaching figures similar to those in the fall of 2022. This trend has persisted for over a year and a half and seems to have no intention of slowing down.
It was a legitimate reaction, as the U.S. economy is showing strong performance and Donald Trump’s economic policies predict that it will be difficult to keep inflation under control in the United States. This means that the Fed will have to suspend interest rate cuts and keep them at higher levels than expected just a few months ago.
Confidence in the market has been confirmed by statistics from the U.S. Commodity Futures Trading Commission (CFTC) showing an increase in positions opened by hedge funds. This is indicative of a strong expectation of further dollar growth, as was the case in January 2019.
The global economy is affected by several factors, including inflation in the United States and structural reforms in Europe.
However, some experts do not believe that U.S. economic policy will have a strong impact on inflation as much as other market players and predict less implementation of promised measures by Trump.
There are some trade policies that could be implemented soon. This could lead to additional tariffs and increased trade regulation, which could have a significant impact on China. In addition, inflation in the United States is expected to decline this year around 2.4 percent.
The dollar is likely to become even stronger by 2025. It has continued to rise steadily over the past three months on expectations that newly elected President Donald Trump’s policies, such as deregulation, tax cuts, increased tariffs, and a more restrictive migration policy that could lead to higher inflation, will boost GDP growth and keep U.S. investment returns high in the medium to long term.
In addition to the strength of the U.S. economy, the dollar is also favored by the growth differential between the United States and Europe. This gap is expected to continue until 2025, with the U.S. clearly outperforming.
According to my forecast, we could see a technical recovery of the EUR/USD exchange rate in the 1.10 area, with prices falling below 1 by the end of the year.
There are several options for investing in the dollar, such as the future or buying dollar bonds such as the Treasury bill maturing on 6/26/2025 with a gross yield of 4.30 percent.
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