Euro Likely to Stabilize Against Dollar Despite Short-Term Tariff Reduction

Euro Faces Limited Downside Against Dollar After U.S.-China Tariff Deal

According to ING’s Lynn Song, the euro is unlikely to fall much further against the U.S. dollar following the agreement between the U.S. and China to reduce tariffs. The two countries agreed to a short-term tariff reduction, which has alleviated some pressure in the global markets, particularly in the currency exchange space. Although the euro dropped by 0.8%, reaching $1.1919, it had earlier fallen to a one-month low of $1.1083, reflecting the ongoing volatility in forex markets.

Despite these fluctuations, Song suggests that the euro will benefit from additional fiscal stimulus from Germany, which is expected to boost the eurozone economy. The German fiscal stimulus plan aims to provide additional economic support, which should help stabilize the euro against the dollar. This fiscal intervention could offer enough momentum for the euro to maintain its position and avoid significant further decline, despite recent fluctuations.

Song notes that any dip in the euro below $1.10 is unlikely to be sustained in the long term. The recent sell-off in the euro was partly driven by dollar aversion, as investors sought safer assets in response to global trade uncertainties, particularly the U.S.-China tariff saga. The April rally in the euro, which was driven by this aversion to the dollar, showed that the currency was able to regain ground when concerns over trade tensions decreased.

In conclusion, while the euro may still face some short-term losses, especially as market dynamics shift due to ongoing tariff negotiations, the combination of a stable U.S.-China trade agreement and German fiscal stimulus are expected to support the euro in the near future. This means the euro will likely maintain a stable footing, and any further significant drops will probably not be sustained.

As investors closely monitor global economic developments, the euro-dollar exchange rate will continue to reflect the interplay between fiscal policies in the eurozone and broader global economic trends.