Donald Trump has repeatedly criticized the Fed and urged it to lower interest rates. The French government has followed suit. Emmanuel Macron has given the ECB advice on how to act. However, the EUR/USD pair has hardly responded to this news. Let’s discuss this topic and make a trading plan.
The article covers the following subjects:
Major Takeaways
- France is telling the ECB what to do.
- Although Americans are upset about the economy, they continue to open their wallets.
- The debt market is not buying Donald Trump’s ideas.
- Long positions on the EUR/USD pair can be opened on pullbacks.
Euro Fundamental Forecast For Six Months
Following Donald Trump’s crackdown on the Fed, European leaders began criticizing the ECB. Emmanuel Macron said that the ECB should start thinking differently and adjust its monetary policy. Inflation cannot be the only goal; attention must be paid to economic growth and employment. Coupled with the dovish rhetoric of the Governing Council members, this forced EUR/USD bulls to retreat.
It would be unwise to suggest that we are in a convenient position in an inconvenient world. Indeed, uncertainty has eased, but it still remains high. Therefore, a reduction in deposit rates cannot be ruled out, despite the markets’ confidence that the cycle of monetary expansion has ended. Meanwhile, the ECB’s 2% inflation target is the only thing that can be considered certain; everything else can change at any moment. This view was expressed by the Governor of the Bank of France Governor François Villeroy de Galhau. He and Emmanuel Macron seem to have joined forces in criticizing the European Central Bank. Is everything really so bad in Paris that the country needs stimulus measures?
Eurozone GDP Growth
Source: Bloomberg.
France may struggle with politics, but its economy is definitely sound. The country made a significant contribution to European GDP, which grew by 0.3% in the third quarter, exceeding the preliminary estimate.
According to US Treasury Secretary Scott Bessent, the US economy will grow by 3% in 2025. Interestingly, its main driving force is dissatisfied consumers. Despite slight growth at the end of the year, consumer confidence is excessively low, but Americans continue to spend money. They are concerned about the cooling labor market, tariffs, and inflation.
At the same time, the bond market does not believe Donald Trump’s suggestion that a reduction in the federal funds rate should lead to a decline in Treasury yields. Debt rates are rising, a development that previously occurred only during the 1998 monetary expansion cycle.
Fed Funds Rate and Treasury Yield
Source: Bloomberg.
Investors are either confident that there will be no recession or concerned about the national debt. However, the US economy is about to face hurdles. Most likely, Donald Trump’s restructuring of the international trading system and pressure on the Federal Reserve are to blame. Should France really follow the US?
Investors view the US economy the same way ordinary Americans do. They are dissatisfied with its health, but continue to ramp up spending. The trajectory of the greenback depends on which scenario comes first: non-residents stopping the injection of money into US securities or the US GDP ceasing to cool down.
EURUSD Trading Plan For Six Months
In the first scenario, the EUR/USD pair will likely surge to 1.22. In the second scenario, however, it may fall to 1.14. It may be risky to buy the euro on pullbacks.
This forecast is based on the analysis of fundamental factors, including official statements from financial institutions and regulators, various geopolitical and economic developments, and statistical data. Historical market data are also considered.
Price chart of EURUSD in real time mode
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteFinance broker. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2014/65/EU.
According to copyright law, this article is considered intellectual property, which includes a prohibition on copying and distributing it without consent.
