Why has the Euro been falling continuously? Tariffs and central bank policies exerting dual pressure

The euro has recently been under continuous pressure against the US dollar, with bulls and bears engaging in intense battles at key levels. Investment institutions are adjusting their outlooks one after another, and the market consensus is that the euro faces depreciation risks. To understand why the euro continues to weaken, a multi-faceted analysis of the current complex situation is necessary.

Multiple Factors Driving Euro Decline Against the US Dollar

The euro’s weakness is caused by more than one factor. First, market sentiment has gradually shifted from the optimistic expectations of Germany’s fiscal stimulus policies to a more rational outlook. Second, uncertainty surrounding US tariff policies has once again cast a shadow over the markets, deepening investors’ concerns about Europe’s economic prospects.

The European Central Bank’s estimates show that if the US imposes a 25% tariff on European imports, it will directly impact the eurozone’s economic growth. Calculations suggest that in the first year, the eurozone’s growth rate could decrease by about 0.3 percentage points. This shift in expectations is driving the market to reassess the euro’s value.

Technical Support Levels Under Pressure

From the chart, the euro/dollar has fallen close to the important support level of 1.075. Technical analysts indicate that if this level is broken further, it could open the door to deeper declines, with next targets possibly at 1.07 and 1.06.

Conversely, as long as the euro/dollar remains above the 21-day moving average, there is still a chance for a rebound. The market is seeking direction at this critical price point, and bulls need to cautiously defend their position.

Tariff Impact and Central Bank Policy Battles

The future trend of the euro hinges on two fundamental factors. On one hand, the strength of US tariff policies determines the actual impact on Europe’s economy; on the other hand, the policy orientations of the European and US central banks will profoundly influence the exchange rate movements.

Market expectations for the Federal Reserve’s rate cuts have been adjusted from three times this year to two, while expectations for the European Central Bank’s easing policies have increased. Recently, ECB Governing Council member Villeroy de Galhau stated that the current deposit rate of 2.5% could be further lowered to 2% before summer.

Market reactions to the ECB’s policy path have been quite pronounced. According to futures market data, the probability of a rate cut in April is priced at 65%, with more easing measures possibly coming in the second half of the year (September to December). These policy expectations exert medium-term downward pressure on the euro.

How Investors Should Respond

Major investment firms like Morgan Stanley have issued warnings to clients, advising cautious position adjustments before tariffs are finally implemented. Specifically, it is recommended to consider moderately closing long euro positions to hedge potential risks.

If the final tariff policies exceed expectations, the euro/dollar could face further downside. However, if negotiations result in less aggressive measures, leaving room for further talks, there could be a rebound opportunity for the euro. Investors should closely monitor policy developments and adjust their strategies flexibly.