FX.co ★ Euro Rallies as Tariff Shift Tempers ECB Rate Cut Expectations

The euro surged past $1.10, nearing its highest point since October 2024, as investors reassessed their outlook on potential European Central Bank rate cuts. This change came after the Trump administration announced a temporary reduction in U.S. tariffs, aimed at coaxing other nations to the negotiating table. However, simultaneously, the U.S. increased duties on Chinese imports from 104% to 125%. This adjustment alleviated some concerns about a global economic downturn and rising inflation but also introduced a new layer of uncertainty likely to linger over the coming months, especially impacting small businesses and overall consumer confidence in future economic conditions. In reaction, money markets adjusted their forecasts, now anticipating an ECB deposit facility rate to reach 1.8% by December, an increase from 1.65% earlier in the week and in contrast to 1.9% the previous week. Additionally, the probability of an ECB rate cut in April decreased to 90%, down from a fully anticipated cut just the day prior.