05 Mar 2025

EUR/USD has reached a new year-to-date peak, surpassing 1.0700, as the US Dollar experiences a decline due to uncertainties surrounding the growth prospects of the United States. President Trump has reiterated that reciprocal tariffs will be implemented on April 2. The European Central Bank (ECB) is anticipated to lower interest rates by 25 basis points on Thursday.

During the North American session on Wednesday, EUR/USD surged to approximately 1.0720, marking the highest level recorded this year. This major currency pair has appreciated as investors continue to divest from the US Dollar amid escalating concerns regarding the US economic outlook. The US Dollar Index (DXY), which measures the value of the Greenback against six prominent currencies, has fallen to a three-month low of 105.15.

A series of developments has altered market participants' views on President Trump's tariff strategy. Investors now expect that the tariffs will hinder US economic growth, contrary to earlier beliefs that they would stimulate growth and inflation.

Additionally, the disappointing ADP Employment Change data for February highlights the impact of Trump's tariffs on business operations. Released during North American trading hours on Wednesday, the ADP report indicated that the private sector added only 77,000 jobs, significantly below the anticipated 140,000 and the previous figure of 186,000.

Citi's report highlights the significant interconnectedness of supply chains among the United States, Mexico, and Canada (USMCA) countries, particularly within the automotive sector. The bank warns that tariffs maintained for longer than a week or two could considerably hinder economic growth.

Furthermore, Citi anticipates a 0.1% decrease in the real Gross Domestic Product (GDP) for the first quarter and predicts that the Federal Reserve (Fed) will resume its policy-easing measures, which were paused in December, during the May meeting.

With the implementation of tariffs, a cooling inflation rate, declining equity markets, and a slowdown in consumer spending, Citi believes the probability of a Fed rate cut in May has increased.

In related developments, 25% tariffs on imports from Canada and Mexico, along with an additional 10% on goods from China, came into effect on Tuesday. President Trump also announced that reciprocal tariffs would be enacted starting April 2 during his address to Congress.

In the daily market update, the EUR/USD pair has reached a three-month high as the Euro (EUR) gains strength following Germany's announcement of a 500 billion Euro (EUR) infrastructure fund and an increase in the borrowing limit, aimed at enhancing defense spending and stimulating economic growth in the Eurozone. These reforms may lead to heightened inflation within the Eurozone economy.

Investors are now looking forward to the European Central Bank’s (ECB) monetary policy decision, set to be revealed on Thursday. It is widely expected that the ECB will lower its Deposit Facility Rate by 25 basis points (bps) for the fifth consecutive time. Consequently, market participants will closely monitor ECB President Christine Lagarde’s press conference following the policy meeting, where she is likely to clarify the monetary policy trajectory without detailing a specific expansion plan. Investors are particularly interested in understanding how the Trump tariffs and Germany's debt restructuring will influence the inflation outlook in the Eurozone.

Technical Analysis: EUR/USD Surges Past 1.0700

The EUR/USD currency pair has reached a new high, surpassing 1.0700, marking its highest point in over three months. This movement has allowed it to recover above the 200-day Exponential Moving Average (EMA) for the first time since early November. The pair exhibited significant strength on Tuesday, following a clear breakout above the previous high of 1.0533 recorded on January 27.

The 14-day Relative Strength Index (RSI) has risen above 60.00, indicating potential bullish momentum if it remains above this threshold.

In terms of support, the January 27 high of 1.0533 is expected to serve as a critical support level for the pair. On the other hand, the high of 1.0937 from November 6 will represent a significant resistance point for Euro bulls.