Euro and Pound Rise Amid Dollar’s Weakening Streak
The Euro and Pound Rise to their highest levels since the week of the US election, making notable gains against the weakening dollar. Growing concerns over a “Trumpcession” – an economic downturn largely attributed to the policies of former President Donald Trump – have unsettled global markets, driving investors away from the US dollar in search of safer alternatives.
The European single currency climbed past the $1.09 threshold, reaching $1.093 for the first time since Trump’s election victory. Meanwhile, the pound sterling rose to $1.2956, buoyed by Trump’s controversial decision to double tariffs on Canadian steel and aluminium. These moves not only destabilised U.S. markets but also contributed to a global market slump.
Why Do the Euro and Pound Rise Against the Dollar?
A Decline Fueled by Escalating Tariff Wars
Trump’s protectionist policies are back in focus, with his decision to double tariffs on Canadian imports inciting chaos in global financial markets. The U.S. stock market reflected growing investor unease, with the S&P 500 index falling by 1.2%, following a significant 2.7% drop on Monday. The dollar also experienced a 0.6% decline against leading global currencies, hitting its lowest level since mid-October. These impacts have erased all gains the dollar enjoyed since Trump claimed the presidency.
European Strength Bolstered by Economic Shifts
Unlike the U.S., Europe appears to be benefiting from a combination of structural, fiscal, and monetary policy changes. Vasileios Gkionakis, a senior economist at Aviva Investors, highlights that Germany’s fiscal adjustments and EU-wide reforms have fostered confidence in the euro. The European Central Bank’s hawkish stance has also spurred stronger interest in the single currency, with some analysts predicting the euro may reach $1.15 “much sooner” than anticipated.
Sterling’s Resilience Amid Global Uncertainty
The pound sterling has also emerged as a strong contender against the dollar, driven by relative economic resilience in the UK and the potential end of economic disruptions caused by Brexit. Robust monetary and fiscal policy measures, coupled with a boost in investor sentiment, have propelled the pound to levels not seen since the political shocks of 2016.
Global Markets React to Trump’s Trade Policies
Stock Markets Under Pressure
The repercussions of Trump’s aggressive trade policies have been visible across global stock exchanges. The UK’s FTSE 100 fell by 1.2% to close at 8495 points, representing its lowest level in over three months. Similarly, Germany’s DAX and France’s CAC index both experienced declines of around 1.3%. This sentiment extended to Asia-Pacific markets, where Japan’s Nikkei and South Korea’s main exchange faced declines, while Chinese markets remained relatively stable, posting modest gains.
Tesla and Trump’s Unlikely Alliance
Former President Trump’s public defence of Tesla amid its stock price crash was another curious highlight of the week. Facing backlash and accusations of collusion from critics he deems “Radical Left Lunatics,” Trump’s vow to support Tesla could raise further questions about his economic priorities, particularly as the electric carmaker’s shares slump more than 50% since December.
The Broader Implications of a Weak Dollar
Potential Risks for the U.S. Economy
The Swiss investment bank UBS has escalated its forecast for a potential U.S. economic downturn, expecting a 30% chance of stagflation or cyclical recession. The bank also points to weaker-than-expected economic data and uncertainty in domestic manufacturing as contributing factors.
Opportunities for Europe and Beyond
On the flip side, the euro and other safe-haven currencies, like the Japanese yen, are benefiting from the dollar’s struggles. Analysts are optimistic about the euro’s continued ascent, with forecasts of a rise to $1.15 this year and potentially $1.20 by 2026, bolstered by Europe’s recalibrated fiscal policies and improving geopolitical landscape.
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