Asset Watch
Tuesday, 7th of January 2025
U.S. Dollar Outlook
Markets are focused on how President-elect Trump will implement his proposed policies, including tax cuts, immigration reforms, tariffs, and government efficiency measures. Additionally, attention is on the Federal Reserve’s response to the economic impact of these policies, which could potentially drive inflation and growth higher.
The Federal Reserve has already signalled caution about cutting interest rates, as emphasised during its December meeting, where it described the U.S. economy as performing remarkably and indicated no urgency to lower rates in the near term. This stance has supported the U.S. dollar, with the dollar index reaching its highest levels in nearly two years.
Euro Outlook
The euro’s outlook appears more challenging. A sharp decline in inflation—driven largely by falling energy prices in 2024— with a weak growth led the European Central Bank (ECB) to implement a series of rate cuts starting from June 2024. Markets are currently pricing in two additional rate cuts in the first quarter of this year and possibly a third cut in the second quarter.
The European industrial sector remains in a recessionary zone after nearly two and a half years of contraction. Additionally, Trump’s threats to impose tariffs on European goods may pressure the ECB to pursue further rate cuts to support growth, which could weigh negatively on the euro.
Chart Source: ADSS Platform
At the start of the year, the euro fell to its lowest levels in over two years against the dollar before rebounding, partially driven by profit-taking.
Currently, the pair is trading between 1.0497 and 1.0200. A daily close above 1.0497 could signal further upside momentum, potentially pushing prices toward 1.0695. However, the resistance level at the 50-day moving average should be considered. Alternatively, a daily close below 1.0200 may encourage a move toward parity (1 euro = 1 dollar).