The Trend of a Stronger Euro and a Weaker Dollar
2025-04-07
■ The euro/dollar continued its sharp rise yesterday, reaching the early $1.11 range and setting a new high since last September, with the euro strengthening and the dollar weakening.
■ Despite ongoing uncertainties surrounding U.S.-EU trade negotiations and the European Central Bank's policy outlook, the euro is expected to maintain its strong momentum in the short term.
Under the "reciprocal tariff" policy implemented by the Trump administration, a base tariff rate of 10% is uniformly applied to all targeted countries and regions, while an additional 20% tariff is specifically imposed on the European Union (EU). U.S. Treasury Secretary Benson stated that this rate represents the "upper limit," indicating the possibility of future reductions. U.S. Commerce Secretary Lutnick added that in order to achieve any new tariff reductions, the EU must address import restrictions and trade barriers affecting U.S. goods. He also criticized the practice in some EU countries of using a 20% value-added tax to subsidize their manufacturing sectors. President Trump remarked that if the targeted country or region proposes “surprising” or unexpected terms, the White House remains open to negotiation. Meanwhile, European Commission President Ursula von der Leyen stated that the EU is prepared to take reciprocal countermeasures but also expressed a willingness to seek a negotiated resolution in the coming weeks. EU trade ministers are set to meet on April 7 to discuss potential responses. With the reciprocal tariffs scheduled to take effect on April 9, markets are closely watching for progress in U.S.-EU trade talks.
According to minutes from the European Central Bank's (ECB) Governing Council meeting held on March 5–6 and released yesterday, officials warned that if the U.S. implements tariffs and faces EU retaliation, short-term inflation risks could rise. The meeting also noted that such developments might dampen economic growth and make the medium- to long-term inflation outlook more uncertain. ECB Vice President Luis de Guindos emphasized the need for a highly cautious approach, stating, "A trade war could overturn expectations and introduce extreme uncertainty, requiring a prudent response strategy." In financial markets, expectations for a 0.25% interest rate hike at the next ECB meeting on April 17—which had been relatively high—are now clouded by uncertainty. The euro's recent strength is largely attributed to the sharp decline in the U.S. dollar. Additionally, growing expectations for increased fiscal spending among eurozone countries have contributed to a significant narrowing of the U.S.-Germany 10-year government bond yield spread, from 1.85% at the end of February to 1.38%. This yield compression is also seen as a key driver behind the euro’s rise and the dollar’s weakness. From a technical analysis standpoint, the euro has broken past the December high of $1.0629, signaling a clear bottoming-out trend. If the currency can hold above the 200-day moving average of $1.0730, it may soon test the $1.1213 high set in September of last year.
■ Despite ongoing uncertainties surrounding U.S.-EU trade negotiations and the European Central Bank's policy outlook, the euro is expected to maintain its strong momentum in the short term.
Under the "reciprocal tariff" policy implemented by the Trump administration, a base tariff rate of 10% is uniformly applied to all targeted countries and regions, while an additional 20% tariff is specifically imposed on the European Union (EU). U.S. Treasury Secretary Benson stated that this rate represents the "upper limit," indicating the possibility of future reductions. U.S. Commerce Secretary Lutnick added that in order to achieve any new tariff reductions, the EU must address import restrictions and trade barriers affecting U.S. goods. He also criticized the practice in some EU countries of using a 20% value-added tax to subsidize their manufacturing sectors. President Trump remarked that if the targeted country or region proposes “surprising” or unexpected terms, the White House remains open to negotiation. Meanwhile, European Commission President Ursula von der Leyen stated that the EU is prepared to take reciprocal countermeasures but also expressed a willingness to seek a negotiated resolution in the coming weeks. EU trade ministers are set to meet on April 7 to discuss potential responses. With the reciprocal tariffs scheduled to take effect on April 9, markets are closely watching for progress in U.S.-EU trade talks.
According to minutes from the European Central Bank's (ECB) Governing Council meeting held on March 5–6 and released yesterday, officials warned that if the U.S. implements tariffs and faces EU retaliation, short-term inflation risks could rise. The meeting also noted that such developments might dampen economic growth and make the medium- to long-term inflation outlook more uncertain. ECB Vice President Luis de Guindos emphasized the need for a highly cautious approach, stating, "A trade war could overturn expectations and introduce extreme uncertainty, requiring a prudent response strategy." In financial markets, expectations for a 0.25% interest rate hike at the next ECB meeting on April 17—which had been relatively high—are now clouded by uncertainty. The euro's recent strength is largely attributed to the sharp decline in the U.S. dollar. Additionally, growing expectations for increased fiscal spending among eurozone countries have contributed to a significant narrowing of the U.S.-Germany 10-year government bond yield spread, from 1.85% at the end of February to 1.38%. This yield compression is also seen as a key driver behind the euro’s rise and the dollar’s weakness. From a technical analysis standpoint, the euro has broken past the December high of $1.0629, signaling a clear bottoming-out trend. If the currency can hold above the 200-day moving average of $1.0730, it may soon test the $1.1213 high set in September of last year.