The euro falls again against the US dollar and loses the reference of 1.05 dollars to the exchange rate. With this Thursday’s drop, the common currency of the euro zone reached intraday prices not seen since December 2022 in an environment where the war in Ukraine is raising tensions more on the Old Continent than in the United States. Additionally, the expected slowdown in interest rate cuts by the Federal Reserve strengthens the dollar once again with a Donald Trump bringing more inflationary policy to the world.
Several factors worked against the euro in the latter part of the year. And after seeing a crossovers above $1.11The currency under the supervision of the European Central Bank has encountered obstacle after obstacle that has led the euro to lose more than 5% since the start of 2024. The final reason why the euro has found its weakness increased is geopolitics.
Since Vladimir Putin authorized the use of nuclear weapons in the face of an attack on Russian territory with long-range Western weapons, the war in Ukraine has regained its importance in the face of the Middle East conflict and the dollar has imposed as safe haven not only against the eurobut before the world’s major currencies are used as reserves by central banks.
The market is factoring in the fact that the US Federal Reserve will not make further interest rate cuts in 2024, according to OIS financial assets (overhead index swaps) while the European Central Bank will maintain its course unchanged. That would mean a downward adjustment of 25 basis points in December and additional cuts of at least 100 basis points over the next year. This will widen the gap between the two central banks and further weaken the euro in the face of a US economy that will keep its price indexes higher than experts predicted in early November. “US inflation outlook improves anticipating a Stronger growth and upward pressure on wages and prices due to Trump’s economic agenda. Bond yields are rising and the dollar will strengthen against the euro,” Bankinter warned.
THE arrival of Donald Trump at the White House It will be linked to inflationary policies, such as customs duties which should be imposed on Chinese products but probably also on European products, as well as expansionist measures, such as a general reduction in taxes. In fact, there are already those who are talking about it parity between the euro and the dollaras Amundi points out, even if there would still be a drop of 4.6% until the currency market goes from one euro to one dollar.
But the euro is not the only one to be affected by the renewed strength of the dollar. Other currencies such as the Swiss franc, the pound sterling or the Japanese yen also lost ground against the dollar. The Bloomberg Index The dollar against the main market currencies increases by 6%.
