Euro-to-Dollar in Fresh Setback

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The Euro is one of the biggest losers from the trade war reprieve.

The Euro-to-Dollar exchange rate dropped by 0.7% on overnight headlines that U.S. President Donald Trump has ten days to drop a significant portion of his tariff agenda, raising hopes for an extended delay to a final implementation.

The Dollar was the big FX winner on a finding by the U.S. Court of International Trade that Trump had no authority to use the International Emergency Economic Powers Act (IEEPA) to implement tariffs.

It judged that trade deficits did not constitute the "unusual and extraordinary threats" required to invoke emergency powers under IEEPA.

"EUR/USD is understandably lower on the U.S. tariff news in that it slightly re-appraises US growth prospects and the risk premium attached to the dollar," says Chris Turner, lead FX analyst at ING Bank.

Trump used the IEEPA to bypass Congress in implementing sweeping tariffs, which caused investors to fear a significant U.S. economic slowdown beckoned.

At the same time, the Euro's appeal as an alternative to the Dollar grew, and the Euro-Dollar exchange rate rose sharply in 2025. "We think the euro is continuing to benefit from being the most liquid alternative to the dollar. There is also evidence that portfolio re-allocation is helping the euro," says Turner.

The court's decision to block the most ambitious elements of Trump's tariff agenda is a relief to the Dollar and thwarts the Euro's recent comeback attempts. Ironically, the Euro should be a major winner of the news, given that the decision seriously undermines Trump's strength in ongoing trade negotiations with the EU.

For now, it's the Dollar's sigh of relief that is the loudest, and a look at the daily EUR/USD chart shows a deterioration in the technical setup that thwarts an attempt to rediscover the 2025 highs at 1.1550.

Above: EUR/USD at daily intervals with technical annotations.

However, three subsequent days of declines now send a warning that the recovery attempt has failed and that a move back to 1.1150 - where the 50-day moving average can be found - is possible.

Ongoing price action points to the possibility that the rally has stalled and that a protracted period of consolidative trading patterns is to emerge.

"The newsflow is mildly supportive for the dollar and there is a scenario where EUR/USD can make it back to the 1.1050 area – consistent with our baseline views for this year that EUR/USD traces out a 1.10-1.15 range," says Turner.

However, other analysts point out that the longer-term picture still advocates for the Euro to advance against the Dollar.

We note that Trump has already sought to appeal the court ruling, and legal experts say he could pursue other avenues to deliver the tariffs.

Analyst Samara Hammoud at Commonwealth Bank says she expects the USD's strength to be short‑lived.

"We do not anticipate a full reversal of U.S. trade policy because President Trump will likely pursue alternative legal avenues to implement tariffs. As such, we continue to expect a gradual reallocation out of USD assets."