Chart of the day: EURUSD (17.04.2025)

The EURUSD has once again moderated its upward trend after a recent rally, as markets await today’s interest rate decision from the European Central Bank. A rate cut is widely expected, and the broader economic environment points toward further monetary easing. Still, there are no clear signs of a correction on the horizon, and the potential for an economic rebound on the continent may fuel continued euro appreciation.

Source: xStation5

Fed on the sidelines, ECB moves forward

The year 2025 marks the definitive end of globally synchronized central bank policy, which had moved in unison over recent years to combat post-COVID inflation. The contrast between the ECB and the Federal Reserve is a prime example. In their latest statements, Fed officials have pointed to a “difficult period” for monetary policy, citing dual-sided risks to their mandate — inflationary pressures and economic stagnation, both linked to Donald Trump’s trade policy.

Meanwhile, weak activity data in the Eurozone and near-zero inflationary pressure — including a record decline in energy prices in Germany — suggest the ECB may need to avoid being overly cautious.

The European bond market is clearly signaling a return of Eurozone interest rates below 2% (see yield on German 2-year bonds, grey upper line). Source: xStation5

Is Europe heading for a rebound?

The new era of protectionism has led to a sharp downward revision of global growth forecasts. However, pressure from Donald Trump could ultimately work in Europe’s favor. The EU’s competitiveness — currently under question — could improve if looser monetary policy paves the way for strategic investments and a deliberate fiscal expansion in Germany.

A revival of genuine economic ambition, combined with Europe’s institutional stability and predictability, may encourage continued capital inflows toward the continent, supporting the euro during a time of declining trust in the U.S. dollar.

What remains uncertain, however, is the final scale of tariffs between the EU and the U.S., and whether pro-growth measures will be enough to offset the potential GDP losses caused by trade barriers.

 GDP growth forecasts in the Eurozone before (orange) and after (blue) Liberation Day. Source: Bloomberg Economics