If someone has forgotten about the tariffs, they will definitely be reminded. The ninth consecutive decline in business activity in the US manufacturing sector was the result of rising costs for companies due to import duties. The scenario continues to play out in which the protectionism of the White House slows down the American economy and contributes to the EURUSD rally. The main currency pair reached a two-week high, but could not stay there.
Tariffs drowned the USD index by 10% in the first half of the year, but then the greenback began to recover. The dog is buried in the lower impact of import duties on the US economy and global GDP as a whole than previously assumed. First, the front-loading of American imports played into their hands, then artificial intelligence technologies. In January-July, investments in AI accounted for up to half of the growth in the gross domestic product of the United States. And their economy, by the way, makes up a quarter of the global total.
Europe, alas, cannot boast of this. And the problem is that the electricity prices needed for artificial intelligence are too high. The Old World began to switch too zealously to green technologies. He managed to reduce carbon emissions by 30% compared to 2005. For the United States, this figure is 17%. However, the medicine turned out to be more harmful than the disease itself: the energy crisis was not only due to Russia’s invasion of Ukraine. Too high energy prices are killing the industry and cutting off oxygen to investments in AI.
As a result, there are serious doubts that the divergence in economic growth between the United States and the eurozone will decrease. Let Germany’s fiscal incentives and increased EU defense spending play on the side of the currency bloc. But it is the factor of reducing the difference in GDP growth, coupled with the divergence in monetary policy between the Fed and the ECB, that underlies the upward trend in EURUSD.
Nobody canceled the second trump card of the euro. While the ECB is talking about defeating inflation, the Fed intends to cut rates. The chances of Kevin Hassett, director of the National Economic Agency, becoming chairman of the Federal Reserve are growing by leaps and bounds. And with them, the scale of the proposed monetary expansion is increasing.
Thus, the EURUSD’s path to the top will be thorny. The euro has a wild card in the form of ending the armed conflict in Ukraine, which will reduce electricity prices and increase investments in artificial intelligence. However, this card has not been played yet.
