The euro has remained relatively stable around the $1.165 level this week, maintaining gains made earlier in the year. Market participants are evaluating new economic data from the Eurozone and observing developments in trade relations between the EU and the US. The possibility of fewer interest rate cuts by the ECB is being considered.
- Eurozone economic activity rose the most in 15 months due to higher new orders and price gauges.
- ESTR futures indicate a broad consensus of one 25bps rate cut by the ECB this year.
- Most European goods will be subject to 15% levies under the new trade deal between the EU and the US.
- Autos, pharmaceutical goods, and chips may not be subject to higher sector tariffs threatened by the US.
- The euro rallied 11% against the dollar this year.
- EU nations signaled they will increase expenditure to stimulate industry, infrastructure, and defense.
- Uncertain economic policy and fiscal stress in the US triggered a flight away from the dollar.
The information suggests a mixed outlook for the euro. Stronger economic activity within the Eurozone and potential for reduced rate cuts by the ECB could support the currency. However, new trade levies could present headwinds. Overall, increased expenditure in the EU and the dollar’s current weakness are factors that have contributed to the euro’s strength and may continue to influence its performance.