EUR/USD price action: euro plummets amid tariff threats and political turmoil
The euro falls below 1.0500 amid Eurozone instability, political tensions in France, and looming US tariff threats, raising concerns about parity with the dollar. Traders watch for further developments.
Key points
- EUR/USD falls by over 0.6% to $1.04607
- Euro experiences 3% drop in November
- Trump threatens 100% tariffs on certain countries
- ECB hints at possible 50 bps rate cut in December
- US dollar index rises nearly 1% to 106.7
EUR/USD price action: euro falls below 1.0500
With the first open forex market day of December, the euro declined by over 0.6% to $1.04607 amid escalating political unrest in France, heightening worries about Eurozone stability. Over the course of November, the euro has depreciated 3%, marking its worst monthly performance in over a year, and raising investor fears about the euro reaching parity with the US dollar.
EUR/USD price history
Trump tariff threats and Eurozone geopolitical tensions weigh on euro
This past Saturday, Trump said he would impose 100% tariffs on countries that are aiming to phase out the greenback as the world’s reserve currency, a statement that partially led to the euro’s decline. In addition to this, France’s far-right National Rally has threatened a no-confidence vote against French Prime Minister Michel Barnier, leading to intense political uncertainty. Compounding these concerns, ECB official Martins Kazaks' dovish remarks spurred speculation about potential rate cuts, with markets bracing for a possible 50 basis point reduction in December, though a 25-basis point cut is still seen as more likely. Weak economic growth in Europe, political turmoil, slowing inflation in the services sector, and looming US tariff threats have all been significant factors that have pressured the euro.
A strong US dollar and its impact
The US dollar index rose nearly 1% to 106.7 on Monday, recovering from a 1.6% drop last week, its first decline in nine weeks. Traders are focused on upcoming economic data, including PMIs, JOLTs, and the jobs report, to gauge the US economic outlook and the Federal Reserve's December plans. The ISM Manufacturing PMI exceeded expectations, indicating a milder contraction in manufacturing. Politically, Donald Trump is pressuring BRICS to avoid creating or backing a new currency to replace the US dollar, threatening a 100% tariff otherwise on countries like China, amid other European countries.
What’s next for EUR/USD?
With dovish signals from European Central Bank Official Martins Kazaks hinting at possible interest rate cuts, potentially a 50-basis point reduction in December, there is potential further euro weakness on the horizon. Weak economic growth and sluggish inflation in the Eurozone’s services sector further dampen the euro's prospects, particularly with regards to monetary policy. On the US side, the political backdrop, with Trump's insistence on maintaining the dollar's dominance, adds an additional layer of complexity.
Looking ahead, the EUR/USD is likely to remain under pressure, with a potential for further declines if the Eurozone fails to address its economic and political challenges effectively, while the US continues to exhibit economic resilience. Traders should monitor these developments closely as they could significantly influence the pair's trajectory, potentially moving it closer to parity if current trends persist.
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