EUR/USD Surges to Four-Year Highs as US Dollar Drops on Fiscal Concerns

EUR/USD Hits Four-Year Highs as US Dollar Weakens

EUR/USD surged to a four-year high of 1.1780 on Monday, fueled by deepening concerns over the US fiscal deficit and increasing expectations of Federal Reserve rate cuts. As of writing, the currency pair trades at 1.1776, up 0.51% for the day.

Key Drivers Behind the Rally

• The US Dollar (USD) has slipped to multi-year lows, pressured by forecasts of over 50 basis points in Fed easing.
• Investors are reacting to signals that the US fiscal budget could be approved soon, boosting risk sentiment.
• Strong Q2 performance in US equity markets has added to the positive market tone, encouraging Euro buying.

US Fiscal Policy and Fed Expectations Pressuring USD

The sharp decline in the Greenback is primarily due to the ballooning US fiscal deficit, which has revived concerns about long-term sustainability. Traders are now pricing in further monetary easing from the Federal Reserve, which would make the USD less attractive.

Euro Strength Despite EU Economic Concerns

While the Euro gains against the Dollar, not all data from the Eurozone has been supportive. German retail sales fell unexpectedly, exacerbating ECB's growth concerns. However, this was overshadowed by the Dollar's broad weakness.

Trade Policy Impact: EU Accepts US Tariffs

The European Union (EU) reportedly accepted Trump’s worldwide tariffs, yet is pushing for reductions in duties on critical sectors such as:

• Pharmaceuticals
• Spirits
• Semiconductors
• Business jets

This may help ease trade tensions and support the Euro further.

What’s Next for EUR/USD?

Traders and analysts will be closely watching upcoming speeches from the ECB and Fed, as well as any developments in the US fiscal budget. Sustained optimism could push EUR/USD even higher, especially if macro data in the US continues to disappoint.

Related Reading on Tredu.com

• What Is a Fiscal Deficit and Why Does It Matter?
• How the Federal Reserve Affects Currency Markets
• Understanding Tariffs: Winners, Losers, and Market Reactions