The publication this Friday of preliminary readings of the purchasing managers’ indices (PMI) prepared by S&P Global above all marked the evolution of the euros/dollars on the foreign exchange market. The pair, which had been trading throughout 2024 in the lowest moving range in history (the path between the pair’s year highs and lows was only 5% until this month), continued a downward trend in the last bars of the week which led it to play in the worst moments of the 1,033 dollars per euroand reached its annual lows for the seventeenth time.
The communication of what the market considers to be a reliable leading indicator of private sector activity ended up undermining the trend of trade between the two currencies. “Eurozone economy appears headed for contraction as end of year approaches“, at least according to this month’s composite PMI of business activity, which fell to its lowest level since January,” said Matthew Ryan, head of market strategy at the global technology company financial Ebury.
“European businesses appear very concerned about the risks posed by President-elect Trump’s sweeping tariff proposals. This could particularly weigh on the common bloc’s economy in the years to come, given that it depends on US demand for around 4% of its GDP consumption”, underlines the expert.
In this sense, the weak figures for the Eurozone have only highlighted increased pressure on the European Central Bank to make aggressive interest rate cuts in the coming months to support the bloc’s economy.
The possibility that the central entity will apply a rate cut of 50 basis points during the December meeting of the Governing Council has strengthened in recent hours, exerting downward pressure on a euro which, notably in its exchange with the dollar, was particularly put under pressure.
The cross between the two currencies not only fell below the 1.04 level this morning, but also recorded its most bearish month in the last two and a half years in November (see chart). Concretely, since mid-March 2022, it has not recorded a monthly decline greater than 4.4%, a figure that can be even deeper since there are still five days before the end of the month.
And all this is already reflected in analysts’ expectations. According to the market consensus collected since Bloomberg, Analyst estimates for the pair for 2025 have been reduced by around 4.5% since early November.and therefore since Donald Trump declared himself the winner of the American presidential elections. They are currently down from $1.13 to $1.08.
In fact, even some companies like Landesbank Baden-Wuerttemberg, or in recent hours ABN AMRO, have modified their forecasts on the crossover between the two currencies and see the pair quote at par during the year 2025.
The euro has failed to appreciate against any of its most-traded peers so far this month.
No wonder. More and more people think that the central bank does not believe that inflation is now under control, which is reflected in the latest statements by officials of the central entity, which are rather aggressive (warmonger). And the recently published data on wage increases in the euro zone during the third quarter are not very reassuring, market sources point out.
The market reflects this trend not only in the exchange of the single currency against the dollar, but also against the rest of the currencies in the basket of the most traded currencies on the planet. And that’s it, the euro has failed to appreciate against any of these pairs so far this monththus becoming the most bearish coin on the list.
The other side of the dollar
A trend opposite to that recorded by the dollar which appreciates in relation to each of the currencies it faces since the electoral victory of Donald Trump in the American presidential election.
“The probability that the Federal Reserve will maintain interest rates in December is close to 50%, which represents a significant change from previous expectations of rate cuts,” emphasizes Ruben Ferreira of FlowCommunity. while ensuring that a decision to maintain rates by the American central bank “would further strengthen the attractiveness of the American dollar”.
“The strength of the dollar should continue,” they say from Fidelity and emphasize that this trend is generally negative for raw materials and energy. “Policies regarding tariffs will be closely monitored and the dollar will be the most sensitive instrument as an indicator of tariff policy, which poses a major risk for Europe and China.”
And even though Trump won’t take office for another few months, his influence is already being felt. “The value of the dollar has risen as investors perceive that Republicans will not only have control of the White House.but also in both houses of Congress,” said Greg Meier, director, senior economist, global economy and strategy at Allianz Global Investors:.
