Euro surge sparks short squeeze as Goldman and Morgan Stanley turn bearish on the dollar

EU-US Trade Tensions Escalate as EU Prepares to Counteract Tariff Threats

As the July 9 deadline for US-EU trade talks approaches,Can I recover the money if I report to the police after being defrauded by the foreign exchange platform US President Trump has threatened to impose up to a 50% reciprocal tariff on EU goods, prompting a strong counter-signal from the EU. The EU has stated that if the US does not remove the current 10% base tariff, it will consider imposing retaliatory tariffs on 95 billion euros worth of US products.

European Commission President Ursula von der Leyen has asked member states to coordinate positions and is preparing to extend tariffs to the technology and services sectors. Although some countries are cautious about retaliatory trade measures, major member states like Germany and France are inclined to support a "credible threat" to secure a fairer agreement.

European Central Bank Officials Lean Dovish, Easing Expectations Boost Euro

European Central Bank Governing Council member Villeroy has recently stated that if inflation expectations remain mild, there is room for interest rate cuts in the next six months. He noted that the current appreciation of the euro is offsetting the upward pressure of international oil prices, while Middle Eastern tensions and global trade disputes are increasing policy uncertainty.

Meanwhile, ECB President Christine Lagarde has also stated in Brussels that geopolitical risks pose a threat to economic growth, with the inflation outlook being more uncertain than ever. As a result, the market is betting on the eurozone's monetary policy maintaining a dovish stance, further boosting the euro's upward momentum.

Federal Reserve Takes Cautious Stance, Powell Reiterates Risks of Inflation and Tariffs

Federal Reserve Chairman Jerome Powell recently testified for two consecutive days in Congress, emphasizing that although current inflation is below the 2022 high, it remains above the 2% target. He stated that the uncertainty of tariffs makes the Fed more cautious in its decision to cut rates, needing to see if there is sustained upward pressure on prices.

While he did not make a clear commitment on whether to cut rates in July, he acknowledged that if inflation is mild or unemployment rises unexpectedly, the Fed might consider taking proactive measures. This statement led to a rapid cooling of market expectations for a July rate cut, while bets on a September rate cut increased.

Investment Sentiment Shifts as Euro Inflows Strengthen Trend

Recent reports from Goldman Sachs and JPMorgan indicate that the dollar's safe-haven attribute is gradually weakening, while the euro is gaining favor worldwide due to political unity and asset attractiveness. Goldman Sachs notes that money is "quietly flowing into Europe" and predicts the dollar will remain under pressure in the coming months.

The currency market has already shown this trend: the euro-dollar exchange rate has recently been climbing steadily, approaching significant technical barriers, leading to a "short squeeze" in related assets. If US-EU differences continue to widen and the ECB maintains its dovish tone, the euro's strengthening trend may persist.

Dollar Pressure Unabated, Euro May Emerge as 'New Safe-Haven Anchor'

Against the backdrop of the Fed's inaction and the eurozone's demonstrated policy coordination advantage, institutional investors are inclined to use the euro as a new anchor currency to hedge against dollar volatility. As transatlantic policy divergence becomes clearer, the dollar index may enter a downward path, while medium-term bullish expectations for the euro are gradually solidifying.

Market focus will center on the upcoming US June CPI data, durable goods orders, and the GDP final report to be released on July 15. If the data is weak, the likelihood of the Fed taking action earlier will increase, providing the euro with more room for appreciation.

Risk Warning and Disclaimer

The market carries risks, and investment should be cautious. This article does not constitute personal investment advice and has not taken into account individual users' specific investment goals, financial situations, or needs. Users should consider whether any opinions, viewpoints, or conclusions in this article are suitable for their particular circumstances. Investing based on this is at one's own responsibility.

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