Euro Declines as US Dollar Confidence Crisis Eases
The euro slipped slightly to $1.163 as US dollar volatility moderated on Tuesday. The dollar has shaken up last week’s banking concerns and is now only 0.7% off its 10 October high.
US dollar has seen significant fluctuation as the greenback lost its safe-haven feature to gold, reflecting investors’ confidence crisis stoked by twisted US trade policy.
Investors have been selling dollars, causing the world-leading currency to lose its allure with increasing global economic de-dollarisation.
EUR/USD may slip all the way to 1.160 in the next few days, but it may require a hot US consumer price index print to extend the drop, ING said in a note.
The European Central Bank (ECB) will enter its pre-meeting blackout period on Thursday, ahead of next week’s rate-setting decision.
Markets have started to price in low interest rate cuts probability given the economy’s resilience while inflation hovering around the 2% target.
The ECB cut rates by a combined 2 percentage points in the year to June but has been on hold ever since as policymakers contemplate if further easing may be needed due to the potential for consumer prices to rise too slowly. On the other hand, the markets are pricing two US Fed rate cuts by year-end.
FX markets data showed US dollar gained modest support from signs of easing US–China trade tensions and expectations that the US government shutdown will end this week.
US Treasury Secretary Scott Bessent and Chinese Vice Premier He Lifeng are set to meet in Malaysia to prevent a further escalation of US tariffs on Chinese goods—a stance President Donald Trump recently described as “unsustainable.”
EUR/USD remains almost entirely driven by US credit/equity sentiment: here, further stabilisation could take EUR/USD all the way to 1.160, analysts said. Levels below that will be harder to justify unless the US consume price index on Friday comes in hotter than expected, ING said.
“On the ECB front, we heard from two hawks yesterday: Austria’s Schnabel and Germany’s Nagel. Nothing new on rates – as expected – but Schnabel did stress the importance of strengthening the international role of the euro.
“The ongoing “global euro” campaign by the ECB remains, however, very much tied to any improvements in politically-driven capital market integration, and it seems unlikely to result in major short-term spot appreciation barring another USD confidence crisis”, ING FX analyst Francesco Pesole said in a note.
Analyst said incidentally, not all the Governing Council may be entirely comfortable with an even stronger euro, even if direct comments on FX have been rather rare of late. Wema Bank Falls, Investors Rotate Positions Ahead of Earnings
