Synopsis:

ING cautions that the recent EUR/USD surge post-tariff announcement is not a vote of confidence in the euro, but rather a reflection of growing pessimism about the U.S. economy and dollar. The bank remains skeptical about sustained euro strength given ongoing structural risks in Europe.

Key Points:

• Dollar Weakness, Not Euro Strength:

  • ING sees the rally in EUR/USD as driven by U.S. fragility—namely weaker consumption and the erosion of "U.S. exceptionalism"—not optimism about Europe's prospects.

• Reserve Diversification Support:

  • Medium-term dynamics like FX reserve diversification and signals from the Trump administration favoring a weaker dollar may continue to support the EUR, even without strong European fundamentals.

• Skeptical on Europe’s Resilience:

  • ING doesn’t agree with the narrative that Europe is now out of the woods post-tariffs. Structural headwinds and economic uncertainty still loom large, and a global trade war remains euro-negative.

• Soft U.S. Equities Add Fuel:

  • A sharper sell-off in U.S. stocks and falling yields are accelerating capital rotation away from the U.S., giving EUR/USD additional lift.

Conclusion:

While EUR/USD has surged on the back of Trump’s tariff move, ING warns that this is not a fundamentally bullish euro story. Instead, it’s the cracks in the U.S. economy and a policy-driven dollar retreat that are lifting the pair. Caution is warranted as Europe's own fragilities remain unresolved, and any renewed pressure on risk assets could quickly reverse the rally.