SocGen sees a faster path to 1.20 in EUR/USD as the dollar weakens amid renewed tariff threats, rising geopolitical tensions, and diminishing haven demand. With EUR/USD breaking above 1.15 for the first time since 2021 and holding that level through risk-off events, structural USD headwinds are mounting ahead of the Fed’s June meeting.

Key Points:

Geopolitics and Trade Escalation:

• President Trump announced the US will notify partners of new unilateral tariffs within two weeks, reviving trade war fears ahead of the 9 July deadline.

• The announcement triggered a sharp USD selloff, pushing EUR/USD to a 3-year high above 1.15.

Diminished Risk-Off Demand for USD:

• Despite heightened geopolitical risk—specifically Israeli strikes on Iran—EUR/USD remained above 1.15.

• The market’s reluctance to buy USD in traditional risk-off conditions signals a weakening of its safe-haven appeal.

Fed Outlook Adds to USD Pressure:

• EUR/USD is closely tracking the Bloomberg Fed speak index.

• A dovish tone next week amid slowing inflation would add to USD downside risks, particularly as growth expectations erode due to tariff fears.

Capital Flow Implications:

• The tariff narrative and policy uncertainty are accelerating outflows from USD assets.

• The shift in sentiment is fueling demand for alternatives, particularly the euro.

Conclusion:

With EUR/USD breaking above 1.15 and holding that level in the face of geopolitical shocks, SocGen now sees 1.20 as attainable sooner than previously expected. Trade uncertainty, a softening Fed stance, and fading USD safe-haven demand form a potent mix for continued euro strength.

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