03 Feb 2025

• EUR/USD kicks off the new week on a bearish note amid resurgent USD demand. 
• Trump imposed tariffs on Canada, Mexico, and China, boosting the safe-haven buck.
• The divergent ECB-Fed outlook also contributes to the downfall and favors bears.
• The EUR/USD pair experiences significant selling pressure on Monday, plunging to the vicinity of 1.0200, marking a three-week low during the early hours of the Asian session. Current spot prices are approaching the over two-year low reached in January, indicating a potential continuation of a prolonged downtrend that has persisted for several months.
  
  The US Dollar (USD) rallies broadly in response to US President Donald Trump's announcement over the weekend to implement 25% tariffs on imports from Canada and Mexico, along with an additional 10% tariff on goods from China. This development signals the onset of a new global trade conflict, dampening investors' enthusiasm for riskier assets. The resulting shift towards safer investments bolsters the USD, which significantly contributes to the downward pressure on the EUR/USD pair.
• On Friday evening, Trump declared his intention to impose tariffs on goods imported from the European Union. This announcement coincides with the European Central Bank's (ECB) dovish approach, which continues to weaken the shared currency and contributes to a bearish sentiment surrounding the EUR/USD pair. Notably, the ECB reduced borrowing costs by 25 basis points (bps) last Thursday, as anticipated, and indicated the possibility of further rate cuts by the end of the year.
  
  This situation highlights a significant contrast with the Federal Reserve's (Fed) hawkish pause, which benefits USD bulls and enhances the likelihood of further depreciation for the EUR/USD pair. However, the recent sharp decline in US Treasury bond yields presents a challenge for the dollar and may provide some support for spot prices. Despite this, the overall fundamental environment suggests that the most likely direction for spot prices is downward.