Since the US President announced reciprocal tariffs in April, the euro has been performing well compared to other G10 currencies, following closely behind the Swiss franc. The euro’s strength is partly due to Germany easing its debt rules in March, which positively affected the currency. There are worries that these new tariffs could cause a US recession and increase inflation, leading investors to move away from US assets. Although the S&P 500 has hit new highs since June, the US dollar remains weak because people expect the Federal Reserve to cut rates aggressively.

Federal Reserve Rate Cuts

Current predictions indicate that the Federal Reserve may cut rates four times in 2026, following a cut in September. This could put pressure on the euro, potentially causing the EUR/USD exchange rate to drop to 1.15 in the coming months. Despite this, the US dollar is holding up due to improved relations between the US and China. On the other hand, the British pound and gold have struggled. The GBP/USD exchange rate has fallen to around 1.3420, and gold is priced at $3,330 per troy ounce. In the cryptocurrency world, Bitcoin recently reached an intraday low of $114,723, but attempts at recovery are underway. Given the risk of a US recession and expected rate cuts, we believe the euro will stay strong against the dollar. The easing of Germany’s debt rules serves as crucial support for the euro. Derivative traders might want to consider buying EUR/USD call options or bull call spreads, aiming for a rise toward the 1.15 level in the coming months. The expectation of monetary easing from the central bank plays a significant role, with the CME FedWatch Tool indicating over a 60% chance of a rate cut by September 2024. While inflation eased slightly to 3.3% in May, it remains a concern that supports fears of a policy shift away from the US dollar. We recommend using any strength in the dollar to enter short positions.

British Pound and Gold Analysis

We note that the British pound has been negatively affected and is currently trading around 1.26, significantly lower than expected. This suggests a strategy of buying euros against pounds could be a smart move. For gold, the forecast of $3,330 indicates long-term growth potential, making it wise to hold long futures contracts as protection against inflation and dollar weakness. In the cryptocurrency market, we have seen major price drops, with Bitcoin trading closer to $60,000 rather than the cited low. We see this volatility as a chance to sell covered calls or use range-bound strategies. A return to previous highs around $73,000 seems more likely before attempting to set any new records. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now