The euro weakened significantly, falling below the 1.1100 mark against the US dollar. This decline followed a surprising announcement that the United States and China agreed to reduce tariffs, boosting investor confidence in the US dollar.
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US-China Tariff Agreement Strengthens the Dollar
In a joint statement, the US and China announced a 90-day agreement to reduce tariffs, aiming to ease trade tensions. Under this deal, US tariffs on Chinese goods will decrease from 145% to 30%, while China’s tariffs on US goods will reduce from 125% to 10%.
This unexpected move led to a surge in the US dollar, as investors anticipated a more stable trade environment. The US Dollar Index (DXY) rose to around 101.60, reflecting strong demand for the greenback.
Euro Struggles Amid ECB’s Dovish Outlook
While the US dollar gained strength, the euro faced challenges due to the European Central Bank’s (ECB) cautious approach. The ECB has signaled potential interest rate cuts in response to weak economic indicators in the Eurozone. This dovish stance has further weakened the euro against the strengthening US dollar.
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Market Outlook: Temporary Relief or Long-Term Shift?
Analysts view the 90-day tariff reduction as a temporary relief rather than a permanent solution. While markets have responded positively, uncertainties remain regarding long-term trade relations and economic policies.
Investors are advised to monitor upcoming economic data and central bank decisions, as these will influence the EUR/USD exchange rate in the coming months.
