EUR/USD ends losing streak, but dark clouds still gather in the market

The euro took a breather against the dollar on Thursday, rising by a quarter of a percent, snapping a six-day losing streak that saw the single currency fall 2 percent against the greenback. Tariff concerns remain near the center of investors' attention, but markets got some brief relief Thursday after U.S. President Donald Trump turned his attention to other matters rather than making a new round of tariff announcements via social media.

U.S. GDP grew by 2.4% in the fourth quarter of 2024, exceeding expectations of 2.3%. However, Moody's warned that higher tariffs and tax cuts could significantly increase government deficits and could downgrade the U.S. debt rating, leading to higher Treasury yields.

S&P Global warned that uncertainty over U.S. policy could hamper global growth, while Fitch Ratings said current tariffs could severely impact smaller economies such as Brazil, India and Vietnam, complicating their ability to buy U.S. goods. The Congressional Budget Office lowered its GDP forecast for 2025 to 1.9%, predicting that growth rate will continue through 2035, with inflation expected to be almost stagnant by 2025. They also foresee that without policy adjustments, the budget deficit will rise to 7.3% of GDP in 2025, and interest payments could reach 5.4% of GDP by 2055.

The key U.S. data release this week will be core personal consumption expenditures price index (PCE) inflation on Friday. Investors hope that the recent rise in inflation data is temporary, but the median forecast expects annualized PCE inflation to rise to 2.7% in February.