Euro Stands Strong Amidst Global Trade Disputes

The Euro has demonstrated remarkable resilience in recent months, emerging as a top performer among major global currencies despite the ongoing backdrop of international trade disputes. Since the US President’s announcement on reciprocal tariffs earlier this year, the Euro has been the second strongest G10 currency, trailing only the safe-haven Swiss Franc.

This strength in the Euro can be attributed to several factors. Optimism surrounding the relaxation of Germany’s debt brake in March significantly bolstered the currency, as many viewed this as a pivotal moment for the Eurozone’s economic outlook. Furthermore, initial concerns that US tariffs could trigger a recession and accelerate inflation led to a noticeable shift away from US assets, providing an additional boost to the Euro.

While that “rotation trade” has since stabilized, the US Dollar continues to face headwinds. Despite the S&P 500 reaching new record highs since June, expectations of more aggressive interest rate cuts from the Federal Reserve are weighing on the greenback. Some financial institutions are now forecasting multiple rate cuts by the Fed in 2026, in addition to an anticipated cut this September.

However, much of this anticipated monetary easing appears to be already factored into current market prices. Given the amount of positive news already reflected in the Euro’s valuation, some analysts are hesitant to project the EUR/USD pair significantly beyond the 1.20 mark, though this target has been brought forward to a nine-month timeframe. Looking ahead, if concerns about a US recession continue to ease, there’s a possibility of a short-term rebound for the US Dollar, potentially leading to a dip in EUR/USD towards the 1.15 level within the next one to three months.