Summary:
The euro steadied Friday but was set for its worst weekly performance in seven months, hitting a one-year low amid parity fears with the dollar.
The euro was on solid footing on Friday but on track for its worst weekly performance in seven months. The currency hit its lowest level in a year amid speculation that it could fall to parity with the greenback.
Some analysts suggest the impact of tariffs will largely hinge on how severe they are. US tax cuts could drive up inflation, potentially limiting the Federal Reserve’s ability to lower interest rates and making the dollar more attractive than the euro.
Fed Chair Jerome Powell recently remarked that there’s no rush to cut interest rates, citing steady economic growth, a strong labour market, and stubborn inflation as reasons to proceed with caution.
Meanwhile, the eurozone economy grew by 0.4% in the third quarter, beating expectations. The recent collapse of Germany’s government could clear the way for new fiscal policies aimed at boosting growth under the next administration.
A weaker euro may provide some relief for Germany, which has been struggling with declining exports to China. However, things could take a turn for the worse, with former US President Trump hinting at blanket tariffs of 10–20% on nearly all imports.
Morningstar DBRS has flagged the automotive and chemical industries—key pillars of Germany’s economy—as being particularly vulnerable to these potential tariffs.
The single currency bottomed out around 1.0500 with RSI indicative of some more gains. The first resistance is seen at 1.0600 – a low hit in mid-April.
Disclaimer: This material is for general information purposes only and is not intended as (and should not be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by EBC or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.
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