Even the Euro is getting beat up. It has recently fallen under the 1.1700 level against the American dollar due to rattling economic headlines and heightening geopolitical risk. The European economy missed the mark, with all results coming in under expectations. Fears over President Trump’s protectionist policies and the currently escalating trade war continue to hang over the global economic outlook.
The drivers of the recent swings of the Euro are a mixture of domestic economic underperformance and the Euro’s international ties. That European economic announcement came in right along market expectations. Persistent worries over escalating trade tensions remain a serious investor risk. The political environment surrounding ongoing or potentially soon-to-come trade negotiations between the United States and other nations is less than certain, intensifying market volatility.
In the United States, factors such as the recent inflation price index release have spurred speculation regarding potential interest rate cuts by the Federal Reserve. Economists are predicting that the central bank will consider a 25 basis point cut in the Fed’s interest rate at their next meeting. A lot of traders are betting on that outcome. Today’s calendar features US producer inflation, which may help to cement or sway market expectations further. A shock upside surprise to producer inflation might change the mood on bets about what the Fed will do next.
As the US dollar continues its rollercoaster ride, one strategy sees traders buying up US currency before it ever reaches the magic 1.20 level. The Euro recently fell below the 1.17 level. This sudden drop is a sign of the exhaustion of the bullish trend it had begun to display on the last two days. This decline has led many to question the Euro’s ability to weather such a costly storm of bad economic fortune.
President Trump and Federal Reserve Chair Jerome Powell are locked in a public war of words. This major global conflict is adding tremendous strain to the US currency. Trump’s divisive immigration and tariff policies have created tension between himself and Powell, creating confusion over monetary policy’s course during an already tumultuous economic storm. These tensions are pushing markets to react by causing volatility in the US dollar. This switch is indicative of the investor mood towards both domestic and global threats.
As market analysts hold their breath, surprises over the growing trade war continue to sabotage any efforts towards global financial stability. The history of unforeseen events derailing complex trade deals makes it easy to imagine a sudden change in market forces. Smart investors are paying very close attention to these unfolding events, because any further escalation of tensions would instantly impact currency valuations.