The EUR/USD pair remains under pressure on Wednesday, holding just above the 1.0600 level during the Asian trading session. This marks the fourth consecutive day of losses for the Euro, with the pair continuing to experience downward momentum as the US Dollar (USD) strengthens.
USD Strength Driven by Trump’s Fiscal Policies
The primary driver behind the Euro’s weakness is the ongoing strength of the US Dollar. Optimism surrounding US President-elect Donald Trump’s proposed fiscal policies, which are expected to boost investment, increase government spending, and stimulate labor demand, is fueling the USD rally. However, this surge in economic activity also raises concerns about inflation, which could complicate the Federal Reserve’s policy outlook.
On Tuesday, Minneapolis Fed President Neel Kashkari reiterated the central bank’s confidence in managing transitory inflation but emphasized that it is still premature to declare a complete victory over inflationary pressures. Kashkari further indicated that the Fed will hold off on modeling the economic impact of Trump’s policies until more clarity emerges on their details.
US Inflation Data and European Economic Outlook
Traders are now focusing on the release of US inflation data later on Wednesday, with expectations for the headline Consumer Price Index (CPI) to show a 2.6% year-over-year increase for October. Core CPI is anticipated to rise by 3.3%, and any deviation from these estimates could impact expectations for future US monetary policy.
On the European front, attention will shift to Thursday’s pan-European Gross Domestic Product (GDP) update. The third-quarter GDP is expected to confirm the preliminary growth estimate of 0.4% quarter-on-quarter, with year-over-year growth forecast at a modest 0.9%. This highlights the region’s lackluster economic performance, which is unlikely to provide much support for the struggling Euro.
Potential Impact of Trump’s Tariff Policies on EU Growth
Further weighing on the Euro is the prospect of potential tariffs under Trump’s administration. A recent report from the London School of Economics and Political Science suggested that a 10% tariff on all imported goods, as advocated by Trump, could negatively impact the European Union’s GDP by 0.1%. This potential slowdown in European economic growth could dampen the Euro’s performance against the US Dollar in the months ahead.
Outlook for EUR/USD
With the US Dollar supported by expectations of stronger fiscal stimulus and a potential rise in inflation, the Euro faces significant challenges. Traders will continue to monitor upcoming economic data for further direction, but for now, the bearish trend for EUR/USD seems poised to persist, especially if inflation data supports a more hawkish outlook from the Federal Reserve.
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