EUR/USD: the end of Trump Trade weighs down on dollar

The euro continued its sideways consolidation against the dollar, supported by the now-clear prospect of Germany breaking its fiscal lock, its famous golden rule.

"Structural changes in fiscal policy in Europe, particularly in Germany, are certainly important factors triggering the upward movement of the single currency," explains Claudia Panseri, Chief Investment Officer at UBS WM France. "Although the announced plans are still preliminary, they reflect a growing willingness among European leaders to increase military spending in response to the reduction of the United States' commitment to European defense affairs and aid to Ukraine."

Traders are also keeping a close eye on April 2nd, and the possible introduction of new customs duties on entry into the United States. This is based on the principle of reciprocity. According to the Wall Street Journal, certain sectors could be excluded from these tariff surcharges.

"A wait-and-see attitude will prevail before Donald Trump's announcement on April 2 of reciprocal tariffs, potentially followed by retaliatory measures from the United States' trading partners," summarises Cesar Perez Ruiz, Chief Investment Officer and CIO at Pictet Wealth Management, who noted a key moment this week, Friday, 28 March, with the publication of the Fed's preferred measure of price dynamics: "core PCE inflation," with the Fed anticipating a delay in the disinflationary trend this year, partly due to tariffs. In anticipation of 2 April - "Liberation Day" according to Donald Trump - the European Union postponed its 50% tariffs on American whiskey until mid-April, which leaves room for negotiation."

In short, the end of the Trump trade is weighing on the dollar, whose status as the all-powerful currency of international trade is being called into question.

"Donald Trump's election sparked a certain euphoria in the US markets, fueled by expectations of pro-growth policies (deregulatory measures and accommodative fiscal policy). These measures suggested a solid economic outlook for a US economy already enjoying solid growth of over 2%, disinflation forecasts, and Fed rate cuts. These very optimistic expectations were quickly dampened by the start of his term, in which Donald Trump focused primarily on measures deemed rather negative for US growth: higher customs duties, reduced federal spending, and reduced immigration," notes Alexandre Drab, Global Chief Investment Officer at Indosuez Wealth Management.

In terms of statistics, traders noted the IFO business climate index in Germany, which rose slightly to 86.6, very close to the target. The business cycle matrix tool clearly shows a trajectory from the "Crisis" box to the "Recovery" box.

But Tuesday's big statistical highlight was the Conference Board's all-important household (read: consumer!) confidence index across the Atlantic. This is an important benchmark at a time when inflationary fears stemming from Trump's expansionary and anti-immigration policies are weighing on buyer morale. The indicator missed expectations, falling from 100 to 93.

"Consumer confidence declined for the fourth consecutive month in March, falling below the relatively narrow range that has prevailed since 2022," said Stephanie Guichard, chief economist for global indicators at the Conference Board. "Among the five components of the index, only consumers' assessment of the current labor market situation improved slightly. Their views of the current economic situation weakened, approaching neutrality. Consumer expectations were particularly pessimistic, with pessimism about the future economic situation increasing and confidence in employment prospects falling to a 12-year low. At the same time, consumers' optimism about their future incomes, which had remained fairly solid in recent months, largely faded, suggesting that concerns about the economy and the labor market have begun to filter through to their assessment of their personal situation."

Right now, the EUR/USD is trading at $1.0774. The Dollar Index remains stable below 104.