EUR/USD falls below 1.0500 as bulls react to new tariff threats | 31 January 2025

EURUSD:

EUR/USD pulled back half a per cent on Monday, falling below 1.0500 and trimming recent gains amid a decline in risk sentiment in the broad market. Trade wars made headlines again after a spat between US President Donald Trump and Colombia over migrant deportations, with newly minted Treasury Secretary Scott Bessent immediately speaking out in favour of widespread global tariffs, just minutes after being confirmed by the US Senate.

The Fed is expected to keep interest rates unchanged in January. However, if Fed Chairman Jerome Powell sounds uncertain at his mid-week press conference, market hopes for more Fed rate cuts in 2025 may diminish. Markets have raised expectations for rate cuts this year, expecting a total of 50 bps.

Late Monday, President Trump reignited trade war fears by announcing plans to impose trade tariffs on key industries on which the U.S. economy heavily depends, including steel, computer chips, aluminium, copper and other semiconductors. Trump insists that the only way to avoid trade tariffs would be to build manufacturing facilities within the U.S. because the U.S. economy is prohibitively expensive to operate, far exceeding any anticipated costs that could be imposed on U.S. consumers as retaliation against countries that export to the United States.

Trade recommendation: Trading mainly with Sell orders from the current price level.

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