empty
23.05.2025 02:59 PM
USD declares war on EUR

What's new is often just what's been forgotten. As spring draws to a close, the long-dismissed mantra "sell America" is making a comeback in markets. The phrase gained traction following Donald Trump's sweeping tariff actions in early April, which heightened fears of a potential US recession. Today, the United States faces a different challenge—fiscal. And the dollar is no longer a safe-haven currency that automatically rallies in times of stress. Still, the US president's threats towards the European Union are clipping the wings of the EUR/USD pair.

If US federal debt does indeed climb to 134% of GDP over the next decade, as projected by Moody's, investors are justified in demanding higher compensation for risk. The so-called term premium in the US bond market has surged to its highest level since 2014. This underscores the depth of market discomfort with the Republican tax-cut proposal.

Chart: US Treasury Term Premium Trend

This image is no longer relevant

Fiscal troubles are eroding confidence in the US dollar. According to Deutsche Bank, America's fiscal woes pose a greater threat to the greenback than to Treasury bonds. Domestic buyers will likely continue absorbing government debt, but foreign reluctance to do the same could be yet another nail in the coffin for the US dollar index.

The White House, however, has its own agenda. Without waiting for the weekend—so as not to rattle equity markets—Donald Trump threatened to impose a 50% tariff on goods imported from the European Union. He argued that current talks between Washington and Brussels are going nowhere, that negotiating with Europe is difficult, and that it's time they "got moving." If not, higher import duties will take effect starting June 1.

Markets are now bracing for a new trade war. While the US reached an understanding with China relatively quickly, doing the same with the EU could prove more challenging. Brussels is preparing countermeasures, and tit-for-tat tariffs are likely to harm both the American and European economies. Business activity in the eurozone is already flashing warning signs, so what happens when 50% tariffs hit?

The only potential lifeline appears to be continued monetary easing by the European Central Bank. A sharp slowdown in average wages, which are now at their lowest since late 2021, suggests that the Governing Council has plenty of room to cut interest rates.

Chart: Eurozone Average Wage Growth Trend

This image is no longer relevant

This image is no longer relevant

Thus, while fiscal challenges weigh on the US dollar, the inability of the US and the European Union to swiftly reach a compromise is a clear negative factor for the euro, driven by fears of losing a trade war. This balance of risks further heightens the chances of consolidation in the EUR/USD pair.

Technically, the daily chart shows a battle unfolding around fair value, located near the 1.134 mark. A win for the bulls would allow them to expand long positions built during the euro's dip below $1.13. Conversely, if bears maintain control of this key level, investors will have to wait for a deeper pullback in EUR/USD to initiate new long positions.

Marek Petkovich,
Analytical expert of InstaForex
© 2007-2025
Summary
Urgency
Analytic
Igor Kovalyov
Start trade
Earn on cryptocurrency rate changes with InstaForex
Download MetaTrader 4 and open your first trade
  • Grand Choice
    Contest by
    InstaForex
    InstaForex always strives to help you
    fulfill your biggest dreams.
    JOIN CONTEST

Recommended Stories

USD/JPY. Analysis and Forecast

At this stage, the Japanese yen has paused its decline against the US dollar. However, further strengthening of the yen in the near term appears unlikely. The key factors influencing

Irina Yanina 20:47 2025-07-16 UTC+2

AUD/JPY. Analysis and Forecast

On Wednesday, the AUD/JPY pair is attracting buyers, even though the Japanese yen remains relatively weak due to domestic political uncertainty. Moreover, according to polls, Japan's ruling coalition—the Liberal Democratic

Irina Yanina 13:04 2025-07-16 UTC+2

GBP/USD: Analysis and Forecast

Today, the GBP/USD pair is attempting to regain positive momentum and rise above the key psychological level of 1.3400, aiming to break a multi-day losing streak. However, spot prices remain

Irina Yanina 12:51 2025-07-16 UTC+2

The EU Needs a Deal with the US—But Not at Any Cost

The euro continues to weaken against the US dollar, even though some European politicians are no longer as soft in their statements as they once were. In an interview, Bundesbank

Jakub Novak 12:46 2025-07-16 UTC+2

Trump Prepares Tariffs on Semiconductors and Pharmaceuticals

Yesterday, the U.S. stock market declined, while the U.S. dollar strengthened further following President Donald Trump's announcement that he plans to impose tariffs on pharmaceutical products and semiconductors

Jakub Novak 12:33 2025-07-16 UTC+2

Trump's Policy Supports the Dollar (EUR/USD and GBP/USD May Resume Their Decline)

The U.S. consumer inflation report released yesterday showed that Donald Trump's policy to "make America great again" is, for now, mainly making life in America more expensive. According

Pati Gani 09:51 2025-07-16 UTC+2

The Market Failed to Hold Its Peak

Markets have started selling the news. Combined with the impact of tariffs showing up in U.S. inflation data, this prevented the S&P 500 from holding at its record high

Marek Petkovich 09:51 2025-07-16 UTC+2

U.S. Inflation Puts Pressure on the Fed

The U.S. dollar rose yesterday against a number of risk assets, despite core inflation in June rising less than expected. Inflation has been increasing for the fifth consecutive month

Jakub Novak 09:24 2025-07-16 UTC+2

What to Pay Attention to on July 16? A Breakdown of Fundamental Events for Beginners

Several macroeconomic releases are scheduled for Wednesday. The most important report is the UK inflation data, which will be published within the hour. While we do not believe this report

Paolo Greco 07:30 2025-07-16 UTC+2

GBP/USD Overview – July 16. "The Devil Is Not as Scary as He Is Painted"

The GBP/USD currency pair has been in a downtrend for the past few weeks, raising some questions. Yes, if we switch to the daily (24-hour) timeframe, the current strong downward

Paolo Greco 04:22 2025-07-16 UTC+2
Can't speak right now?
Ask your question in the chat.
Widget callback
 

Dear visitor,

Your IP address shows that you are currently located in the USA. If you are a resident of the United States, you are prohibited from using the services of InstaFintech Group including online trading, online transfers, deposit/withdrawal of funds, etc.

If you think you are seeing this message by mistake and your location is not the US, kindly proceed to the website. Otherwise, you must leave the website in order to comply with government restrictions.

Why does your IP address show your location as the USA?

  • - you are using a VPN provided by a hosting company based in the United States;
  • - your IP does not have proper WHOIS records;
  • - an error occurred in the WHOIS geolocation database.

Please confirm whether you are a US resident or not by clicking the relevant button below. If you choose the wrong option, being a US resident, you will not be able to open an account with InstaForex anyway.

We are sorry for any inconvenience caused by this message.