The euro weakened toward $1.0289 on Wednesday, edging close to its two-year low from earlier this year. Market sentiment has been rattled by mounting concerns over US trade policies under President-elect Donald Trump and persistent inflationary pressures in the Eurozone.
Trump’s Tariff Threats
CNN reports suggest that President-elect Trump is contemplating declaring a national economic emergency to impose broad tariffs under the International Economic Emergency Powers Act. This move would allow Trump to target both allied and adversarial nations with sweeping trade measures.
Despite earlier indications of milder proposals, Trump has dismissed such plans, signaling his determination to pursue an aggressive trade agenda. This intensifies fears of escalating trade tensions, weighing heavily on global currency markets, particularly the euro.
Eurozone Inflation and ECB Policy
On the other side of the Atlantic, Eurozone inflation rose to 2.4% in December, up from 2.2% in November. While this uptick suggests growing price pressures, analysts believe it will not deter the European Central Bank (ECB) from further monetary easing.
The ECB is widely expected to cut rates by 25 basis points this month, with markets pricing a 96% probability of such a move. However, expectations for additional easing throughout 2025 have tempered slightly. Current forecasts suggest three quarter-point rate cuts this year, with a 70% chance of a fourth.
Market Implications
The combination of US trade policy uncertainty and Eurozone monetary easing pressures has created a challenging environment for the euro. Its descent toward $1.0289 reflects a broader market shift as investors weigh the implications of these macroeconomic developments.
In the weeks ahead, the euro’s trajectory will likely hinge on further announcements from the Trump administration regarding trade measures and the ECB’s response to inflationary trends. Investors should remain vigilant as these events unfold, given their potential to reshape global currency markets.
