April 7, 2025 – Written by Tim Boyer

STORY LINK Euro to Dollar Forecast: EUR Awaits EU Tariff Retaliation, USD to Weaken

The Euro to Dollar exchange rate (EUR/USD) was subject to extreme volatility after President Trump imposed widespread tariffs on global economies.

As fear stalks major markets, the European reaction will be a crucial test for market sentiment

After a surge to 6-month highs near 1.1150, there was a slide to below 1.0950 as equity markets came under heavy pressure and Fed Chair Powell ruled out an emergency interest rate cut.

There are likely to be big changes in investment bank forecasts over the next few weeks.

According to BNP Paribas; “Our base case is for moderate EURUSD gains in 2025 (to 1.12) and substantial gains in 2026 (to 1.20), as the Fed starts cutting rates in 2026.”

On a near-term view it also now forecasts that EUR/USD will strengthen to 1.14.

In contrast, HSBC expects that the dollar will regain ground.

Risk conditions deteriorated rapidly and heavily as fears over the global economy intensified and Fed Chair Powell ruled out any emergency rate cut.

There were sharp gains in defensive assets, notably the Swiss franc with the dollar initially under heavy pressure before recovering ground as China announced retaliation.

According to ING; “Remember that if investors don’t like the dollar – and the US is the epicentre of the story – then the next most liquid G10 currency is the euro.”

The US Administration announced a baseline 10% tariff on all imports into the US which came into effect on April 5th.

Many major countries, however, were given additional tariffs. Although labelled as reciprocal, the extra levies simply punished countries running trade surpluses with the US and were, therefore, also a designed as a political weapon.

The overall EU tariff was set at 20%, Japan at 24% and China at 34%. These are scheduled to come into effect on April 9th.

China announced retaliation on Friday with 34% tariffs on US exports.

Over the medium term, the relative economic impacts will be very important for markets and FX rates.

In this context, potential retaliation by the EU, diplomatic negotiations and the next US Administration moves will be crucial.

The EU Commission is planning to announce counter-tariffs this week, potentially on certain categories rather than universal tariffs.

A measured EU stance could underpin risk appetite.

MUFG also commented; “Hopefully, the deepening financial market sell-off will put pressure on President Trump and other countries to quickly reach deals to water down the proposed tariff hikes and provide some relief for financial markets.”

Investors will still be braced for a long-term impact.

According to HSBC; “Markets need to digest a global economic slowdown, not just a US one. When this reality sinks in, the US will likely regain its relative allure in this potential race to the bottom for economic activity.”

Monetary policy will also be a key element. There are now strong expectations that the ECB will cut rates this week with two further reductions over the remainder of the year.

Federal Reserve Chair Powell stated that it was too early to judge the economic impact of tariffs and stated that the committee would take its time in deciding on any policy changes.

Markets are, however, convinced that the Fed will cut rates by mid-year.

Deutsche Bank considers the risk of a slide in dollar confidence; “The safe haven properties of the dollar are being eroded.”

It added; “Our overall message is that there is a risk that major shift in capital flow allocations take over from currency fundamentals and that FX moves become disorderly.”

The bank also warned over implications for other countries; “The last thing the ECB wants is an externally imposed disinflationary shock from a loss in dollar confidence and a sharp appreciation in the euro on top of tariffs. Expect pushback. We are in the midst of dramatic regime change in markets.”

MUFG noted some hopes for the Euro; “Plans for significantly looser fiscal policy in Germany and reports of EU-wide support measures for growth to offset the negative impact from tariffs are helping to provide support for the EUR at the time when US tariffs will significantly tighten fiscal policy in the US.”

UBS expects the dollar will lose further ground; “First, the US is the focal point and will therefore likely bear the brunt of the economic fallout caused by waging a trade war on multiple fronts. This means US growth faces greater downside risks, implying lower US interest rates and a more dovish Federal Reserve; all of this weighs on the greenback.”

It did, however, note that; “while the focus has been mainly on the US economy over the past two days, the rest of the world will also suffer from increasing trade burdens.”

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TAGS: Euro Dollar Forecasts

I wrote on 30^th March that the best trades for the week would be:

1. Long of Gold, which fell by 1.78%.
2. Long of EUR/USD following a daily close above $1.0951. This set up on Thursday, but the week ended lower by 0.80%.
3. Long of US Copper futures following a daily close above $5.25. This did not set up.

The overall result was a loss of 2.58%, which was 0.86% per asset.

Last week saw the Presidency of the USA announce new tariffs on imports which were set at a flat 10% with many individual countries given higher rates, sometimes considerably so. The key USA trading partners tariffs were set at:

1. China 54%
2. Japan 24%
3. European Union 20%
4. Canada 25%
5. Mexico 25%

The tariffs have been justified as “reciprocal” by President Trump, with the White House publishing an infographic showing the tariffs imposed and the claimed related “tariffs and other barriers to trade” imposed on US exports by the same countries, which were invariably higher, hence Trump’s claim that he is being “kind”. However, the numbers given are extremely questionable and certainly cannot be verified as tariffs or taxes on imports but seem to have been calculated by comparing the balance of trade between the USA and the relevant nation.

No country except China has yet reacted by imposing retaliatory tariffs against the USA. The Trump administration will be hoping that the tariffs on both sides will be mostly negotiated away, which would likely provide a boost to US corporate profits and economic growth. However, if this does not happen, especially with the key US trading partners, it is hard to see how the world will escape a global recession and a renewed spike in inflation.

The tariffs were somewhat worse than expected and have triggered huge market moves which rival the coronavirus crash of 2020 and the market crash of 2008, especially in US stock markets and in certain currencies (especially the commodity currencies and the Japanese Yen) and major commodities, such as foodstuffs, energies, and metals. Markets are extremely volatile, and the usual technical factors will be mostly irrelevant, with the future of the tariffs being the only major question driving prices over the short term.

There were a few important data releases last week which should also be noted:

1. US Average Hourly Earnings – as expected.
2. US Non-Farm Employment Change – this was much better and stronger than expected, showing 228k net new jobs created when only 137k were expected, suggesting the US economy is stronger than thought.
3. US Unemployment Rate – this rose unexpectedly from 4.1% to 4.2%.
4. US JOLTS Job Openings – a bit worse than expected, suggesting a slowing economy.
5. US ISM Manufacturing PMI – this was slightly worse than expected.
6. German Preliminary CPI (inflation) – a 0.3% increase month on month, as expected.
7. Swiss CPI (inflation) – a tick lower than expected, completely flat month on month.
8. Reserve Bank of Australia Policy Meeting – the Cash Rate was left unchanged at 4.10% as expected.
9. US ISM Services PMI – this was worse than expected.
10. US Unemployment Claims –as expected.
11. Canadian Unemployment Rate – as expected, this rose from 6.6% to 6.7%.

The coming week has a lighter schedule of important releases, but the releases are the most important ones in the market. However, unless there is more news about the tariff issue, volatility is likely to be at least a little bit lower this week.

This week’s important data points, in order of likely importance, are:

1. US CPI (inflation)
2. US PPI (Purchasing Power Index)
3. US FOMC Meeting Minutes
4. US Preliminary UoM Inflation Expectations
5. US Preliminary UoM Consumer Sentiment
6. Reserve Bank of New Zealand Official Cash Rate and Rate Statement
7. UK GDP
8. US Unemployment Claims

For the month of April 2025, I again made no monthly forecast, as the Forex market was dull and there were only mixed long-term trends.

Last week, I made no weekly forecast, as there were no unusually strong movements in any weekly currency crosses.

This week, I make weekly forecasts as there have been very strong price movements in currency crosses:

• GBP/JPY is likely to rise
• AUD/JPY is likely to rise
• GBP/CHF is likely to rise
• NZD/JPY is likely to rise
• EUR/NZD is likely to fall
• EUR/AUD is likely to fall
• GBP/AUD is likely to fall
• AUD/CAD is likely to rise
• NZD/CAD is likely to rise
• NZD/CHF is likely to rise

The Japanese Yen and the Swiss Franc were the strongest major currencies last week, while Australian Dollar was the weakest. Volatility increased markedly last week, with more than 75% of the most important Forex currency pairs and crosses changing in value by more than 1%. Next week will likely see relatively high volatility as the tariff saga continues, but it will likely be at least a little lower than the volatility we saw last week.

You can trade these forecasts in a real or demo Forex brokerage account.

Last week, the US Dollar Index printed a very large bearish candlestick, but the price regained most of its losses at the end of the week, leaving a large lower wick. There was a lot of movement in the Forex market last week due to the US announcing large tariffs on imports.

The price is well below its level of 3 months ago, invalidating its former long-term bullish trend. The price is still above its level from 6 months ago, but not by much. The support level at 102.25 held, and this level is starting to look like the last pivotal defense against the formation of a new long-term bearish trend in the greenback.

It is very difficult to say what will happen next, as the Dollar will be driven by political developments – whether the tariffs are negotiated away, or whether they stay or even increase, is likely to make all the difference.

The NASDAQ 100 Index fell very sharply last week, closing in bear market territory for the first time in almost 4 years. The price is more than 20% off its record high it made just a few months ago and is far below its 200-day moving average. It last saw these levels in August 2024.

The main reason for the strong drop in most global stock markets, and the major US indices in particular, is of course the large tariffs President Trump has imposed on US imports. This tech index is more strongly affected than the broader market, due partly to higher prices of chips which will result, especially from Taiwanese imports. However, the decline is mostly due to uncertainty and a fear of recession.

The price closed near the week’s low, and there is no bottom in sight yet.

The S&P 500 Index fell very sharply last week, closing near bear market territory for the first time in almost 4 years. The price is more than 15% off its record high it made just a few months ago and is far below its 200-day moving average. It last saw these levels in May 2024 almost a year ago.

The main reason for the strong drop in most global stock markets, and the major US indices in particular, is of course the large tariffs President Trump has imposed on US imports. There are many companies which rely upon strong domestic sales in the USA which manufacture abroad that are hard hit. A good example is NIKE, which fell by 14% in one day after the tariffs were announced.

The price closed near the week’s low, and there is no bottom in sight yet. Some analysts are looking to the big round number at 5000 as potential support.

Gold rose firmly last week to reach a new record high just below the round number at $3,200. However, after the new US tariffs were announced, the price see-sawed sharply, selling off strongly twice before closing the week significantly lower, almost three times the long-term average true range off its high closing price. Many trend traders will still be long but will be very close to being shaken out and exiting.

Gold can advance during periods of crisis like the one we are in now but seems to not be behaving as a hedge against risk, and this is common during strongly risk-off markets like we are seeing now.

So, I think it is wise to not be long of Gold right now, unless we get a new record high New York close over the coming week.

The AUD/JPY currency cross fell very strongly over the week, with the Australian Dollar extremely hard hit by Trump’s new tariffs as a major exporter of raw materials for manufacturing, and its close economic ties to China. The Japanese Yen was the week’s big gainer, along with the Swiss Franc, as a safe- haven.

This currency cross is often a barometer of market sentiment, and this is what we see happening here. The price has reached a new 2-year low.

There is a good chance we will see the price rebound somewhat over the coming week, especially if there are any signals of tariff negotiations getting underway, or even if there is no further tariff escalation.

Technically, the fact that we may be seeing a bottom at the big quarter-number of ¥87.50 could also be significant.

It may be wise to drill down and look for a long trade if this bottom continues to hold.

I see the best trades this week as:

1. Long of Gold following a daily close above $3,134.31.
2. Following these expected movements in the Forex market:
   1. GBP/JPY is likely to rise
   2. AUD/JPY is likely to rise
   3. GBP/CHF is likely to rise
   4. NZD/JPY is likely to rise
   5. EUR/NZD is likely to fall
   6. EUR/AUD is likely to fall
   7. GBP/AUD is likely to fall
   8. AUD/CAD is likely to rise
   9. NZD/CAD is likely to rise
   10. NZD/CHF is likely to rise

Although it might be tempting to short stock market indices or individual stocks, this is a very risky move for beginners. With such high levels of volatility and relevant political factors, stock markets might make a very strong recovery any day.

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