Towards weaker dollar

Following the announcements regarding U.S. reciprocal tariffs, the dollar corrected against most currencies, particularly the G10 currencies, amid fears of a significant slowdown in the U.S. economy and in reaction to heightened expectations of rate cuts by the Fed, despite the prospect of higher U.S. inflation. In this stagflationary environment, the market reflects nearly four rate cuts of 25 basis points (92 basis points exactly). In the short term, the dollar will likely remain weak, especially if U.S. macro data (cf. ISM Index) supports the market's current scenario of a pronounced slowdown in American growth. Attention will be on the NFP this Friday. Likewise, the dollar will maintain a bearish bias knowing that Trump is not opposed to a weaker dollar to support U.S. exports. Finally, there is a risk of escalating tariffs. Trump has clearly stated that he would increase tariffs further in the event of retaliatory measures. Conversely, the United States seems ready to lower tariffs if their trading partners take steps to "remedy non-reciprocal trade agreements and align with the U.S. on economic and national security matters." Such an environment is likely to sustain the volatility, which has increased significantly and this could lead towards a currency war. The EUR/USD briefly crossed above 1.11 after breaking through technical levels and continuing in reaction to the narrowing of the US/Euro interest rate differential. For now, it is noted that the rebound of the EUR has been greater than what the interest rate differential suggests. The EUR benefits and will continue to benefit from the probable repatriation of European capital invested in U.S. equities in recent years in response to the likely deterioration in U.S. corporate profits. In the medium term, particularly in 2026, the EUR will remain supported by European growth, which will be bolstered by defense-related stimulus measures and the German infrastructure plan. Thus, there is a significant probability that the EUR/USD will appreciate more quickly than expected towards our previous target of 1.12, heading possibly towards 1.15 in the beginning of 2026.