Geopolitics will destroy the euro

The US dollar continued its advance on Forex thanks to a new batch of strong macro statistics. Jobless claims rose less than expected. Productivity rose to a two-year high, and the US trade deficit unexpectedly narrowed to its lowest level since 2009. Donald Trump's plan to balance foreign trade with import tariffs is working. However, the Supreme Court may rule the tariffs illegal by the end of the week on 9 January.

The cancellation of import duties would return funds to American companies and households, which have largely absorbed the cost of tariffs that previously weighed on economic growth. The US economy has continued to expand, supported by investment in artificial intelligence, rising productivity, and the wealth effect created by record equity markets that have boosted household prosperity. The return of tariff revenues would effectively act as a fiscal stimulus, increasing disposable income and corporate cash flow. As a result, GDP growth and inflationary pressures are likely to accelerate.

This combination will create another barrier to lowering the federal funds rate. Stephen Miron's calls to cut it by 150 basis points in 2026 seem like a voice crying in the wilderness. Most FOMC members understand perfectly well what the return of money from tariffs could lead to. The hawks will gain a strong trump card, the pause in the monetary expansion cycle will be prolonged, and the US dollar will benefit from this.

Rumours of additional sanctions against Russia are putting pressure on the EURUSD. Diplomatic efforts to bring peace to Ukraine are not yielding results, and the continuation of the armed conflict will continue to hold back the eurozone economy. Events in Venezuela and talk of Greenland joining the US are increasing geopolitical tensions. According to ECB Vice-President Luis Guindos, this could hurt business, and increased household savings will slow GDP growth. 

Despite the strengthening of the US dollar, gold has managed to counterattack. The precious metal is able to benefit from the Supreme Court's repeal of tariffs. The return of money will lead to an increase in the US budget deficit and public debt. These processes underlie debasement trading. In 2025, it became one of the key drivers of the 65% rally in XAUUSD.   

The FxPro Analyst Team