The euro experienced declining, and has reached the lowest level since the beginning of November in 2022. This is the result of weaker indicators from the economy of the eurozone and the potential for an upcoming trade war between America. United States. The value of the currency fell to down to $1.04 in relation to the dollar after an analysis that showed a decline in the output of the private sector of the eurozone. This decline has been made worse by the prospect of the upcoming US tax hikes against European imports. This is a scenario that was threatening for a while following the US election. The currency’s value declining over three straight weeks and reaching $1.041.

The proposed tariffs imposed by the US which include a substantial tax on Chinese items and 10%-20 percent tariff on goods of other countries, could cause European exports of goods to US less competitive, possibly inhibiting economic growth in the eurozone. The the Deutsche Bank’s George Saravelos, suggest that markets are been unable to adequately reflect the potential economic policies proposed by the US administration. There is only 30% of the possible effects currently being reflected in the financial markets.

Recent statistics have revealed a decline in business activity across the eurozone which has led to speculation of the escalating rate of interest cuts being made from the European Central Bank (ECB). The market is now expecting the possibility of a 50-basis-point rate cut at the ECB’s meeting in December. The economic outlook for major countries in the eurozone, like Germany and France remains uncertain as forecasts suggest stagnant growth as well as slowing economic growth and vice versa.

The selection by Scott Bessent as Treasury Secretary in the US may bring some semblance of stability to the euro due to his pro-market stance and his preference for gradual implementation of tariffs. But the larger expectation for the future of US tariffs on trade and their impact on inflation suggests that it is the US Federal Reserve keeps its higher interest rates to fight inflation. On the other hand, the ECB might significantly cut borrowing costs in order to limit potential risks of recession within the eurozone.

Analysts, such as those at ABN Amro, forecast a difference in monetary policy among the Fed as well as the ECB and could result in the euro being at par with the dollar before 2025 because of increased US import tariffs, and their effect on global trade patterns.

Source: The Guardian