EURUSD Surges to Four Month High as USD Plunges on Economic Slowdown Fears.
The EURUSD currency pair has climbed above 1.0900, reaching its highest level in four months as the US Dollar (USD) weakens amid escalating concerns about a potential economic slowdown in the United States. The US Dollar Index (DXY), which measures the greenback against a basket of six major currencies, has dropped to 103.30, marking a significant decline.
Key Takeaways:
The Euro (EUR) strengthens as the German Green Party agrees to back increased defense spending.
US Dollar weakens as fears of an economic downturn grow due to potential Trump-era tariff policies.
Investors are closely watching the US JOLTS Job Openings data for January and the February Consumer Price Index (CPI) report for insights into the Federal Reserve’s next moves.
Market expectations for a Fed rate cut in May have increased to 51% from 37% just a day ago, according to the CME FedWatch Tool.
Why Is the US Dollar Weakening? Key Factors Driving the USD Decline
US Economic Slowdown Fears Are Intensifying
The biggest driver behind the USD’s decline is growing fears of an economic slowdown in the US. Investors are concerned that President Donald Trump’s “America First” policies could lead to higher inflation and reduced consumer demand. Market participants initially saw Trump’s trade policies as growth-friendly, but now worry about their short-term economic consequences.
Impact of Trump’s Tariffs on Businesses and Consumers
One of the main concerns is that higher tariffs on imports will increase costs for businesses. Instead of absorbing these costs, businesses are likely to pass them on to consumers, leading to higher inflation and reduced spending power. This scenario could result in weaker overall demand, ultimately slowing down the economy.
Fed Rate Cut Bets Surge as Market Reacts to Economic Uncertainty
Growing concerns about an economic downturn have led to increased market speculation that the Federal Reserve (Fed) will cut interest rates in May. According to the CME FedWatch Tool, the probability of a rate cut has risen from 37% to 51% in just one day.
Federal Reserve Chair Jerome Powell recently hinted that the central bank is prepared to adjust its policy if inflation remains high. Speaking at an economic forum at the University of Chicago Booth School, Powell stated that the Fed’s policy is not on a “preset course”, and they could maintain policy restraint longer if needed.
Key US Data Releases That Could Influence the USD
Investors are now eagerly awaiting key US economic data, including:
US JOLTS Job Openings data (January) – Expected: 7.75 million new jobs.
US Consumer Price Index (CPI) data (February) – Expected to remain above the Fed’s 2% target.
These reports will be crucial in shaping market expectations for the Fed’s next move and could further impact the US Dollar.
EURUSD Gains Momentum as Germany Approves Higher Defense Spending
German Green Party Backs Defense Spending Deal
The Euro (EUR) has gained strength due to political developments in Germany. The German Green Party, led by Franziska Brantner, has signaled support for an increased defense budget, a move that could stimulate the economy.
In an interview with Bloomberg, Brantner stated, “Of course, we are ready to negotiate. The situation is dire in Ukraine, and we really need Europe to speed up its own defense spending.”
This marks a significant shift, as the Greens had previously opposed debt reforms. Now, there is a growing belief that Germany will ease borrowing restrictions, potentially providing a much-needed boost to the economy.
How German Spending Plans Impact the Euro
For the past two years, the German economy has struggled, with stagnant growth and recession fears. Increased government spending could help revive economic activity and strengthen investor confidence in the Euro.
Additionally, Germany’s fiscal expansion has led traders to reassess ECB rate cut bets. The European Central Bank (ECB) has already cut rates twice this year, and markets had priced in two more rate cuts. However, given Germany’s new spending plans, expectations for further ECB cuts may now be revised.
What’s Next for EURUSD? Key Levels and Market Outlook
Investors Focus on Fed Policy and Economic Data
If US economic data weakens, EUR/USD could rise further above 1.0900.
A strong CPI report could limit the Euro’s gains and strengthen the USD.
Any hawkish Fed commentary could reverse some of the USD’s losses.
Technical Outlook for EURUSD
Immediate resistance: 1.0950 – 1.1000 (psychological level).
Key support: 1.0850 – 1.0800 (recent lows).
A breakout above 1.1000 could signal further upside momentum.
Final Thoughts: Will EURUSD Continue Its Uptrend?
The EURUSD rally has been fueled by a weaker US Dollar and stronger Euro sentiment, thanks to Germany’s increased defense spending. However, the pair’s next move will depend on upcoming US economic data, particularly CPI inflation and job market reports.
If US data disappoints, the Euro could extend its gains, while a strong inflation reading could push the USD higher. The Federal Reserve’s policy stance in the coming months will be critical in determining whether EURUSD continues rising or faces a reversal.
For now, traders should closely monitor economic indicators and key technical levels to anticipate the next major move in the EURUSD currency pair.
