Published: June 4th, 2025
The Euro to Dollar exchange rate (EUR/USD) began the new week in bid, gaining three-quarters of a percentage to reach 1.1429, the highest point in more than a month.
The pair is back on the front foot and analysts say on-track for additional upside in the coming days, pushed ahead by a narrative of fundamentals shaped by rising global trade conflicts.
American President Donald Trump is agitating for additional punitive tariffs against China after agreeing an initial China-US trade agreement in early May. The administration is now accusing China of breaching that accord. When markets closed this past Friday, he raised tariffs on Chinese exports of steel and aluminium.
In a market analysis published on Monday, Danske Bank's FX Strategy Unit wrote that ‘Tariff worries are on the rise again following a Friday evening intervention by the White House that doubles levies on Chinese steel and aluminium from June 4th. EUR/USD has moved above 1.1348 as a result, while US bond yields also inch higher. Stock futures, meanwhile, have sunk into red.’
In recent months a rising Euro has become a predictable reaction to intensifying trade tensions, Danske's analysts added. Regular reminders that Trump favors tariffs as a negotiating tactic and wants to level out the US balance of trade globally, should put sails in EUR's 2025 YTD uptrend for the next few weeks. ‘We would not be surprised if EUR/USD achieved new highs on the trend.’
Trump told journalists that Beijing had ‘totally violated’ the May trade deal, shattering investor hopes that warming trade relations between the two countries would continue.
At the end of December 2024, the Euro-Dollar rate came under pressure as a brief pre-Christmas recovery failed to extend into the yuletide break. Analysts said recent comments in the financial press by European Central Bank (ECB) President Christine Lagarde were the likely source of cooling demand for the single currency.
Lagarde told Bloomberg on 20th December that she was optimistic Frankfurt was on course to hit its two percent inflation target. The ECB, Lagarde said, was ‘approaching the point where we have brought down inflation to our medium-term goal of two per cent.’
An analysis by Bank of New York (BNY) said Lagarde's comments support the view that falling inflation will free the ECB's hand to out-cut other G10 central banks in the coming months, almost guaranteeing that EUR will stay under pressure, especially against the Greenback.
The week prior the US Federal Reserve signaled it wanted to cut interest rates only two times next year against a background of resurgent economic growth. Despite the upbeat sentiment, USD dipped on Friday after publication of under-expectation PCE inflation figures, which took the air out of the Dollar's upward ascent.
The core PCE measure indicated US inflation had risen by 0.1 per cent month-on-month in November, roughly half the 0.2 per cent consensus forecast. Year-on-year inflation remained stable at 2.8 per cent. Markets, however, were looking for an uptick to 2.9 per cent.
BNY analysts said this prompted some investor relief and a selloff in USD, which needed a steady supply of hawkish data to keep its rally going. Data prints that showed at- or below-consensus readings resulted in later pullbacks.
In October 2024, a note to investors from UK-based global investment bank Jefferies said a dip in the Euro to Dollar exchange rate below its 200-day moving average marked a significant deterioration in the pair's technical outlook.
The firm's forecast model relies on the 200-day displaced moving average (DMA), which positions the pair in a multi-week downtrend when below, and an uptrend when above.
‘The 200 day moving averages can be key long-term milestones where fiat currencies sometimes get caught and stay above or below their moving averages for extended periods.’
In mid-October the 200 DMA was located at 1.0872, with signals suggesting the technical level had become a ceiling, even as rebounds seen the previous week attempted to rise above it.
The remainder of the month saw EUR/USD wallowing below the 200 DMA though there were multiple retests of the seven-day level.
The single currency was under pressure as more and more traders concluded that the European Central Bank (ECB) would cut interest rates more deeply, and at a more aggressive pace, than the US Fed.
That sentiment had already impacted Eurozone bond yields negatively versus the US. In early October Frankfurt responded to Eurozone's softening inflation readings by reducing interest rates by another 25 basis points.
In November 2024, multiple ECB speakers, including bank President Christine Lagarde, started dropping hints about what the policy future would hold for EUR. Upside risks prompted some ECB members to attempt to lower expectations for the rate of future cuts, especially given the bank's recent aggressive footing.
EUR reached a peak of 1.1174 USD in late August 2024 and was up 2.61 per cent against the USD for the month. While momentum had shown signs of slipping, FX strategists at Convera said the EUR/USD rate could still test the 30-month range close to USD 1.12 before the month concluded.
EUR had been riding high since the release of the Federal Reserve's July-end policy meeting minutes on Wednesday, 21st August. The minutes revealed that a number of Fed policymakers were ready to cut rates then and there, raising expectations for a September reduction and additional cuts in the following months
In a note to investors, Convera wrote that aggressive bets on Fed easing ‘(had) been overshadowed by economic weakness in the Eurozone. EUR's August rally has been steady and consistent, pushing it to a one-year high against USD.’
Over the previous three weeks, expectations for subsequent Fed rate cuts grew faster than the schedule expected from Frankfurt central bankers, leading to a divergence in rate expectations that was expected to pull the Dollar down against the Euro.
