EUR/USD traded briefly above 1.080 yesterday on the back of the broad-based unwinding of post-election USD longs. This appears to be a positioning unwinding, and we doubt markets are reconsidering the negative implications of Trump’s expected policies on the eurozone, ING’s FX analyst Francesco Pesole notes.

Short-term rate spread argues for a weakening in the pair

“Our core view is that the new Republican administration can widen the USD:EUR rate gap further as inflationary policies slow down Federal Reserve easing while the European Central Bank could move faster with cuts ahead of some protectionism-related impact on growth.”

“While our projected rate profile for the Fed and ECB is enough to justify EUR/USD trading below 1.05 throughout 2025, we have added a risk premium related to a potential worsening in global risk sentiment as well as idiosyncratic eurozone risk around the end of 2025 and beginning of 2026. This is when we expect the impact of US tariffs to have the deepest market impact.”

“Back to the short term, we think we have entered a period where EUR/USD could be oscillating around its recent range as markets shift the focus back to macro. However, the short-term rate spread argues for a weakening in the pair and the looming risks for the eurozone associated with Trump’s core policies mean we retain a bearish bias on the euro.”