UBS expects the euro to continue its upward trend in the second half of 2025, targeting the 1.20 level against the U.S. dollar, following a consolidation phase around the 1.09–1.11 range. This outlook is supported by a recent U.S.-EU trade agreement that has reduced uncertainty, along with accommodative monetary and fiscal dynamics within the eurozone particularly the European Central Bank’s cumulative 250 basis points of rate cuts over five quarters, and anticipated fiscal support from Germany.
The British pound declined last week against the dollar, largely impacted by the broader strength of the greenback and ongoing domestic economic weakness in the UK. The pound also underperformed against the euro. Despite slowing growth and a weakening labor market, elevated wage pressures and persistent inflation reduce the likelihood of aggressive policy easing by the Bank of England. UBS projects only two additional rate cuts of 25 basis points each this year, particularly in the context of performance against the Swiss franc.
European stock markets opened Wednesday’s session with mixed gains, supported by a generally positive Q2 earnings season. The DAX (Germany), CAC 40 (France), and FTSE 100 (UK) responded positively to the latest financial releases. However, the impact of trade tariffs has begun to appear in the profit margins of some companies, raising concerns about potential headwinds in Q3.
German industrial orders fell short of expectations, contracting by 1% in June when markets were anticipating growth. This figure adds to concerns over a slowdown in industrial activity, especially with continued weakness in production chains. Investors are also awaiting eurozone retail sales data, which could be a decisive factor in evaluating consumer demand within the region.
Oil prices rebounded after four consecutive sessions of losses, driven by renewed fears of tighter U.S. sanctions on countries importing Russian oil particularly after Trump escalated pressure on India. Sentiment was further supported by a surprise drawdown in U.S. crude inventories of 4.2 million barrels, although market pressure remains due to the planned OPEC+ output increase starting in September.
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