The euro remains under sustained pressure due to two overlapping narratives: escalating trade tensions with the United States and a persistent divergence in monetary policy expectations.

Tariff Threats Undermine Confidence in European Exports
President Trump’s announcement of potential 30% tariffs on EU goods is a significant downside risk to the European growth outlook. While markets are still holding out hope for a negotiated outcome by August 1, the tone of the discourse has become more confrontational. This creates downside asymmetry for the euro where even modest disappointments or delays in negotiations could lead to sharp EUR selling. With Europe’s economy already fragile and heavily export-driven, these tariffs are not just symbolic they pose a direct threat to industrial activity and confidence.

ECB Has Limited Room to Counterbalance via Policy
The European Central Bank is constrained. Inflation remains soft, and real wage growth is not convincing enough to justify tightening. This means the ECB is likely to maintain a dovish posture, especially if trade uncertainty escalates. Markets know this and capital is flowing accordingly, toward USD.

USD Strength Reinforced by Real Yield Advantage and Global Liquidity
The U.S. dollar is attracting flows not only because of geopolitical fears but also due to its positive real yield differential versus Europe. In an environment of global uncertainty, this remains a structural tailwind. The longer U.S. rates stay elevated while the eurozone stands pat, the more appealing the dollar becomes especially for institutional capital hedging global risk exposure.

EUR/USD is under both political pressure (via trade) and monetary pressure (via the ECB’s inaction). Unless there’s a breakthrough in U.S.-EU negotiations, the downside case remains dominant.

SHORT EURUSD

Jul 15 2025