Euro shows mettle amid market mayhem, but storm clouds loom
In the midst of last week’s turbulent global market sell-off, the EUR displayed an impressive degree of resilience against the USD. However, this show of strength may prove short-lived, with the single currency potentially becoming anchored just above the 1.0850 mark should trade tensions between Brussels and Washington escalate.
Although the EUR/USD pairing dipped by less than a percentage point on Friday—despite intensifying hostilities between the US and China that dragged numerous currencies lower by as much as 5%—the euro actually managed to post notable gains on several cross rates. This was largely thanks to the broad rally in the USD.
Nonetheless, the EUR's recent advances may soon unravel, particularly if the European Commission retaliates against the United States' recently announced 20% “bespoke reciprocal tariff,” which came into effect last Wednesday. Should Brussels opt for a tit-for-tat response, it could trigger a fresh salvo from Washington, in line with President Trump’s recent warning that any retaliatory measures would be met with yet more punitive tariffs.
Such a scenario could weigh heavily on the EUR, not only in its pairing with the dollar but also across the board, especially amid growing anxiety over the broader economic implications for the Eurozone. Still, some observers remain cautiously optimistic, suggesting the euro might find support from the greenback’s flagging performance this year against other major currencies.
Adding to the uncertainty is the uneasy relationship between the trade-weighted dollar and China’s managed exchange rate system. Beijing’s commitment to its basket-based currency approach has kept both the offshore (USD/CNH) and onshore (USD/CNY) dollar-yuan exchange rates relatively stable—despite mounting pressure from US trade measures. Yet, this hasn't prevented either the dollar or the yuan from slipping notably against other currencies.
Sterling stumbles, but glimmers of hope remain amid global trade jitters
GBP suffered a sharp setback against the USD on Friday, caught in a broader market upheaval. Yet, a partial rebound towards the 1.2947 mark and beyond could still be on the cards—particularly if overly bleak perceptions of the US economic outlook and weakening fundamentals begin to weigh once more on the greenback in the days ahead.
Against the EUR, GBP also endured a challenging week, tumbling to its lowest level in eight months—briefly dipping below 1.17—as the single currency outpaced GBP in weathering last week’s market storm. Even so, a modest recovery may be possible should the euro falter, with key technical levels at 1.1813 and 1.1880 offering potential footholds.
The EUR’s resilience came into sharper focus on Friday as it posted notable gains, particularly against currencies like the Australian dollar (AUD), which plunged by over 4% at one stage. By contrast, GBP slipped by as much as 1% against the EUR, reflecting investors' relative preference for the single currency during heightened volatility.
However, this trend could yet reverse. The EUR's ascent may face headwinds if trade tensions between Brussels and Washington intensify. The spectre of retaliatory tariffs looms large following President Trump's warning last week that any countermeasures would be met with even more aggressive US levies.
Should such a tit-for-tat scenario unfold, the EUR’s recent gains could unravel, giving GBP a window of opportunity to claw back some ground—especially in the absence of fresh UK-specific shocks. That said, the spotlight will turn to Friday’s release of February’s UK GDP figures, which could temper any bullish momentum for the pound.
If the data paints a picture of economic stagnation—under the weight of elevated borrowing costs and a gloomier public mood ahead of looming fiscal changes in April—then hopes of a sustained recovery in GBP/EUR may have to wait a little longer.
