HG MARKETS:

The euro has been experiencing significant pressure in November 2024, dropping by around 3.8% against the US dollar, marking its worst month since early 2022. As the single currency approaches the critical $1 mark, analysts are raising alarms about the potential for heightened market volatility. The rapid decline in the euro could become the next major source of global economic instability, following the tumultuous movements in Japan’s yen that caused widespread market disruptions in August.

This downward trend in the euro is being driven by a combination of factors, ranging from economic weakness within the eurozone to global geopolitical tensions and shifts in the US economy. At the heart of the euro’s struggle are concerns surrounding the proposed trade tariffs by US President-elect Donald Trump, an ongoing economic slowdown in Europe, and the intensifying conflict between Russia and Ukraine. These factors have compounded the challenges facing the euro, even as the US dollar has been bolstered by positive growth projections for the US economy.

Several elements are contributing to the euro’s significant slide against the dollar. Firstly, the outlook for the eurozone remains bleak, with economic performance in the region continuing to lag behind other major economies. Weak growth prospects, high inflation, and concerns about political stability in several European nations have all weighed heavily on investor confidence. The ongoing Russia-Ukraine conflict has only added to the uncertainty, pushing energy prices higher and placing additional strain on the European economy.

Meanwhile, across the Atlantic, the US economy has shown signs of strength, buoyed by robust stock market performance and growing investor optimism. The prospect of further growth in the US has spurred demand for the dollar, pushing it higher against a weakened euro. This divergence in economic conditions has made the dollar increasingly attractive to investors, further pressuring the euro.

Despite the euro’s current struggles, there is no clear consensus among investors and currency traders about what lies ahead. Some market participants argue that the dollar, while strong at the moment, is not without risks. Inflationary pressures from tariffs and the growing US national debt could undermine investor confidence in the US economy. These factors suggest that the dollar’s strength may not be sustainable over the long term, creating the possibility of a reversal in the currency’s fortunes.

On the other hand, some analysts believe that the euro will continue to face downward pressure as long as the economic conditions in the eurozone remain weak. If the euro falls further, it could trigger significant volatility in the currency markets. Such fluctuations could disrupt the popular “Trump trades,” which are based on the expectation that the euro will continue to decline while US stocks rise. These trades have become increasingly popular as investors bet on the strength of the US economy, but a further drop in the euro could challenge this strategy and create unexpected market shifts.