EURUSD falls to around 1.0600 as investors anticipate that Trump’s protectionist measures will have a substantial impact on the Eurozone’s export sector.
EURUSD fell below 1.0620 for the first time in nearly seven months during Tuesday’s European session. The major currency pair remains under severe selling pressure due to increased concerns about the Eurozone export sector outlook, especially since President-elect Donald Trump promised to hike import taxes by 10% during his election campaign.
Market experts say that Trump’s landslide victory is positive for consumer confidence and corporate mood in the United States (US), but it is concerning for their top trading partners. Trump’s protectionist measures might also set off a vicious cycle of global trade war, particularly with the Eurozone, as Trump has stated that the eurozone will “pay a big price” for not purchasing more American commodities.
According to a recent report from the London School of Economics and Political Science, imposing a 10% tariff on all imported goods, as supported by Trump, would have a 0.1% negative impact on the European Union’s (EU) GDP.
Meanwhile, the collapse of the German three-party coalition with the dismissal of Finance Minister Christian Linder by Chancellor Olaf Scholz last week has contributed significantly to the Euro’s weakening. Olaf is willing to call for a hasty election and a vote of no confidence in December The election will take place in early 2025, according to Deutsche Welle news.
The ECB likely to decrease interest rates by 50 basis points in December.
The European Central Bank (ECB) is expected to bear German political instability as well as potential weakening in export volume. “It seems a leap of faith at this stage to expect a complete turnaround in the German fiscal position and instead, the onus will be on the European Central Bank to support the eurozone economy, which expected to cut interest rates by 50 basis points (bps) in December,” according to ING economists.
Daily Market movers: EURUSD drops as the US dollar gains further.
EURUSD is also down due to the strength of the US dollar (USD), which continues to benefit from so-called ‘Trump trades’. The US Dollar Index (DXY), which tracks the value of the greenback versus six major currencies, , continues its surge above 105.70.
The greenback climbs further on optimism about the prospective effects of Trump’s initiatives, such as increased labor demand, corporate investment, and persistent price pressures, which would drive the Federal Reserve (Fed) to adopt a more gradual policy-easing approach.
Analysts at JP Morgan have revised their terminal rate projection to 3.5% from 3%, forecasting a consistent sequence of 25 basis points reduction beginning December. According to the CME FeDwatch tool, the Fed’s likelihood of lowering interest rates by 25 basis points to 4.25%-4.50% in December is 65%.
Investors are now focusing on October’s US inflation figures.
Investors will closely watch the US Consumer Price Index (CPI) data for October, which will be present on Wednesday, as well as remarks from a string of This week’s Fed officials included Fed Chair Jerome Powell.
Economists estimate headline inflation to have risen to 2.6% from 2.4% in September, with core CPI – which includes volatile food and energy prices – climbing gradually by 3.3%.
