Since January, the euro has appreciated over 10% against the US dollar, reaching 1.1369 dollars per euro. This surge is largely attributed to a capital flight from the dollar due to President Trump's protectionist trade policies, including steep tariffs on China. Concurrently, confidence in the eurozone's recovery from a mild recession has increased, contributing to euro strength. Diverging monetary policies, with the US cutting interest rates while the ECB remains hawkish, also play a role in attracting investors to the euro as a more favorable currency. However, potential US tariffs on EU imports remain a risk.
"Trump is undermining trust in the rationality of US policymaking, the long-term outlook for US growth and the sustainability of its public finances," Holger Schmieding states.
"As a result, the dollar is losing some of its value, but the euro is no real alternative," Schmieding emphasizes, noting the potential downsides of increased tariffs.
"The euro's strength is also being fueled by diverging monetary policies," showcasing the impact of US rate cuts versus ECB's hawkish stance on inflation.
"Major currency swings of 10% in mere months are relatively rare, and the euro is increasingly being seen as a counterweight to the dollar," highlighting the euro's newfound resilience.
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