I’ve been watching the euro-to-US dollar trend recently and found that this one has been falling for several days now, and is currently pressing toward the 1.078 level. Why has the euro kept falling? There are mainly two reasons: first, the positive effects from Germany’s earlier fiscal stimulus have already been digested; second, uncertainty around the U.S. tariff policy has started to trouble the market again.

From a technical perspective, the euro-to-US dollar pair is already approaching key support. If it breaks below 1.075, it could open up more significant downside room; the next move could be a straight run at 1.07, or even 1.06. But if it can hold the 21-day moving average, it may instead be setting up an opportunity for a rebound. Why has the euro continued to face pressure? Ultimately, it comes down to two factors: first, the difference in the timing and pace of interest-rate cuts between the U.S. and the ECB; second, the eventual direction of tariff policy.

At present, market expectations for the Federal Reserve to cut rates within the year have been reduced to 2 times, while expectations for the European Central Bank’s rate cuts have actually been rising. An ECB executive board member said deposit rates could be lowered from 2.5% to 2% before the end of summer. The market has already fully priced in the June rate cut, and the probability of a rate cut in April has reached 65%. If the tariffs ultimately implemented by the U.S. are milder than expected and there’s still room for negotiation, that would be beneficial for the euro; conversely, if tariffs land aggressively, the downward pressure on the euro-to-US dollar would be greater. Morgan Stanley’s recommendation is to be more cautious before the tariff policy becomes clear, and to consider reducing long euro positions to hedge risk.