On Thursday, the euro plummeted against the dollar during the first trading day of 2025, falling below the crucial support level of $1.03 and hitting a low of $1.0225, the lowest since November 2022. This marked the latest display of the euro's recent downward trend, with the day's largest decline exceeding 1%.
According to the European Central Bank, the euro currently stands at a two-year low against the dollar. Over the past three months, it has cumulatively fallen about 8%. On the first trading day of 2025, the euro opened at 1.0351, but as concerns over the European economic outlook and monetary policy divergences intensified, it fell below the important psychological threshold of $1.03 in the afternoon, accelerating its decline.
Market analysts suggest that the weak economic performance of major European economies is a core factor pressuring the euro. Although the European Central Bank has implemented interest rate hikes over the past year, its tightening policy is relatively weaker compared to the U.S. Federal Reserve. Also, the Fed’s more cautious stance on rate cuts has kept the dollar strong, further depressing the euro's value.
Uncertainty over future trade policies has also added pressure to the euro's trajectory. Concerns about a potential new round of U.S. trade protectionist policies have driven funds toward the dollar as a safe haven. Meanwhile, rising energy costs in Europe and weak consumer demand have cast a shadow over the eurozone's economic prospects.
Financial institutions like Danske Bank and Wells Fargo predict that the euro's weakness against the dollar may persist throughout the year. With insufficient supportive factors to bolster the euro, the exchange rate against the dollar could possibly drop to the parity level of 1:1 or even lower.
Analysts indicate that the continued depreciation of the euro could challenge the recovery of the European economy. As exchange rate fluctuations intensify, the import costs for European companies may rise, potentially dragging down regional economic growth further. Amid the current high uncertainties of the global economic and geopolitical landscape, the euro's outlook remains fraught with multiple challenges.
