The euro has recently plummeted to a one-year low against the US dollar, trading at approximately $1.0546 as of November 14, 2024. This significant decline, which represents a drop of 5.7% since the end of September, follows the release of US inflation data that showed a year-over-year increase of 2.6% in October, up from 2.4% in September. Core inflation also rose by 0.3% month-over-month and 3.6% year-over-year, contributing to a strengthening dollar as US government bond yields, particularly the 10-year Treasury yield, reached 4.47%. Market strategist Michael McCarthy has predicted that the dollar will continue to strengthen amid these rising bond yields. [ee815f2b]
The political landscape in the U.S. is also influencing the euro's performance. With Republicans securing a majority in the House, concerns are growing about the potential implications of Donald Trump's policies, particularly regarding tariffs, should he win the presidency again in the upcoming election. Analysts from major financial institutions, including JPMorgan and Deutsche Bank, have suggested that the euro could be as much as 6% away from reaching parity with the dollar, which would further exacerbate the eurozone's economic challenges. [c4d09ca2]
However, a recent analysis from Fitch Solutions suggests that the current weakness of the euro attributed to Trump's victory may be overstated. The analysis forecasts that the euro will trade at 1.11 USD per EUR, with expectations of further declines to 1.06 in 2024 and 1.05 in 2025. Despite this, the long-term outlook for the euro remains poor, with high uncertainty surrounding the impacts of tariffs and the ongoing Ukraine war potentially threatening transatlantic relations. [90e2530e]
The International Monetary Fund (IMF) has downgraded its growth forecast for the eurozone, predicting only a 1.2% expansion next year. This outlook has been compounded by mixed economic data from the region. While Spain's Services PMI rose to 57 points, France and Italy experienced declines, and Germany's PMI fell to 50.6. The overall eurozone PMI decreased to 51.4, indicating a weakening economy that may compel the European Central Bank (ECB) to consider further rate cuts. [68d9371f]
In addition to the economic data, the eurozone's inflation rate has remained below target, recorded at 1.8% in September, prompting the ECB to implement its third rate cut. The prospect of Trump's tariffs, including a proposed 10% global import tariff and a 60% tariff on China, raises concerns among investors about the potential repercussions for the eurozone economy. [9aa8fcdb]
Technical analysis indicates a bearish trend for the EUR/USD pair, with resistance at 1.0870 and support at 1.0835. Analysts are closely monitoring liquidity levels below the August low of 1.0777. The economic calendar remains relatively quiet until the global flash PMIs are released on October 24, but any signs of weakness in the U.S. economy could lead the Federal Reserve to accelerate rate cuts, further impacting the dollar's strength. [80d118b6]
Despite the prevailing bearish sentiment, some analysts remain cautiously optimistic. Valentin Marinov from Crédit Agricole warns against premature parity predictions, while Robin Brooks highlights the conventional rise of the dollar post-2016 election. There is potential for a boost in the eurozone economy if Trump were to end the Ukraine war, which could alter the current dynamics. [986c9c97]