The EUR/USD pushed higher towards 1.0800 in a friendly manner throughout the American extension on Thursday. This represents a notable continuation of the US Dollar’s persistent weakness. Yet this search for market demand comes in the wake of the recently announced US auto tariffs, adding to the steep upward trend. First, despite the ECB’s own easing, it has produced only modest effects on bank lending across the eurozone. Though lending has started to slowly grow, it hasn’t come close to touching the footing we stood on prior to the pandemic.
In February, eurozone bank lending to businesses and households reported a sudden acceleration. Household lending increased from 1.3% in January to 1.5% and business lending increased from 2% to 2.2%. Even with this growth, the ECB’s measures to jumpstart the economy aren’t cutting it. Despite these positive movements, the impact of the ECB’s easing measures are still starting to work modestly but surely in the economy, moving where they should.
At the current pace of bank lending, we can expect a very gradual return to robust private investment. Further, we can only expect the meaningful increase by 2025. Medium-term investment prospects could be improved sharply by the defense plan and German infrastructure plan, both proposed public investment plans.
Current US Dollar weakness is being amplified by unfolding geopolitical events and confusion created around tariff talks. These are the primary things investors are watching. At the same time, the recent surge in US Treasury bond yields seem to be limiting the upside potential of XAU/USD.