By Linh Tran, Market Analyst at XS.com
In the short term, the story of EURUSD continues to revolve around the growth and yield differentials across the Atlantic.
On the European side, the recurring theme of modest yet fragile growth remains: Eurozone GDP for Q3 2025 expanded by only +0.2% q/q (EU: +0.3% q/q), while the October HICP flash eased to 2.1% y/y — close to the ECB’s target but still insufficient to reignite new growth momentum. In terms of policy, the ECB continues to anchor rates at relatively low levels, signaling caution to maintain inflation around 2% while accepting the current pattern of mild growth.
In contrast, the United States maintains a “higher-for-longer” stance after its latest rate cut at the end of October. Fed Chair Jerome Powell emphasized that the recent reduction was “not a signal of a broad easing cycle to come.” Economic data such as the ISM Manufacturing Index, which fell to 48.7 in October (from 49.1 in September), indicate that the manufacturing sector remains in contraction. However, the U.S. dollar has strengthened on expectations of a prolonged restrictive policy and a reduced likelihood of early rate cuts. As a result, the DXY climbed to a three-month high near 99.7 earlier this week.
The interest rate differential, coupled with the 10-year U.S. Treasury yield holding around 4.0–4.1%, continues to favor carry trade flows, thereby supporting the USD over the EUR.
From a capital-flow perspective, tariff concerns and trade uncertainty — particularly between the U.S. and China — still linger. Although recent high-level meetings suggest a temporary easing of tensions, it is premature to conclude that tariff-related risks have been fully removed. This uncertainty continues to weigh on supply-chain stability and input costs for European firms, thereby limiting the euro’s ability to recover during short-term “risk-on” phases.
Regarding the USD, if the tariffs imposed under the Trump administration are struck down or legally curtailed by the U.S. Supreme Court, the impact could be two-sided. Should the Court significantly overturn the current tariff structure, the logical outcome would be a moderate weakening of the USD, as expectations for Fed policy easing strengthen, while EURUSD could see a modest rebound. Conversely, if the ruling proves mostly technical and the majority of tariffs remain intact, trade uncertainty will persist, U.S. yields will stay elevated, and the dollar will likely maintain its advantage over the euro.
In the near term, EURUSD is expected to remain biased to the downside, as incoming data so far tend to reinforce the U.S. yield advantage rather than weaken it. Meanwhile, the Eurozone’s combination of modest growth, inflation near target, and a dovish ECB stance forms a backdrop that offers little incentive for a strong euro rebound without new catalysts.
In the medium term, a potential recovery in the euro could emerge if U.S. data continue to cool meaningfully, causing the yield curve to ease and Fed rate-cut expectations to build, while simultaneously, the Eurozone would need clearer signs of improvement in its economic indicators to support such a turnaround.