Euro Set for Worst Week Since 2022 on Europe-US Trade Deal Pain
The euro is headed for its worst week in almost three years against the dollar as concern seeped in to the market about the economic impact of Europe’s trade deal with the US.
The common currency is trading around 2.8% lower since the start of the week at $1.1420, the biggest drop since September 2022. It’s been one of the hardest hit as the dollar gains against all its Group-of-10 peers and trades near to a two-month low.
Some traders began questioning whether this may be a turning point for the euro, which touched a at the start of July. The currency had been a key beneficiary of investors diversifying their holdings outside of the US and had also drawn support from Germany’s plan to ramp up government spending.
But that optimism waned this week, with Europe seen as in a trade deal that places on its exports to the US.
“The fallout from the EU-US trade deal has been a wake up call for investors regarding the headwinds that face the eurozone economy,” said Jane Foley , head of FX strategy at Rabobank. “That’s sparked profit taking in the euro.”
While the trade deal reached on Sunday allowed Europe to avoid a full-blown trade war, the levies are still set to be the steepest in the EU’s history. Pessimism around the outlook for the region was compounded by data that portrayed the US economy as relatively more resilient.
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Holding a long position in the euro to prepare for a prolonged downturn in the greenback has been one of the market’s this year, with banks from Morgan Stanley to Barclays Plc forecasting further gains for the common currency.
The euro steadied on Friday, trading flat against the dollar before European inflation and US jobs data. But it may be a while before sustained gains resume, according to Foley.
The market has got this “dose of reality that things are still going to be hard for a number of German exporters,” she said. The expected boost to growth from German fiscal plans “may not really be reflected in the data until next year.”
