Artificial intelligence technology has increased productivity in the US, allowing the country’s economy to exceed expectations in 2024, leading to a stronger US dollar. Let’s discuss this topic and make a trading plan for the EURUSD pair.
The article covers the following subjects:
Major Takeaways
- The economic growth gap has pushed the EURUSD pair down.
- The US dollar outperforms the euro thanks to the US economy’s productivity.
- Divergence may intensify in 2025 due to Donald Trump.
- Short trades on the EURUSD pair can be opened on a rebound from resistance levels of 1.0425, 1.047, and 1.051.
Weekly US Dollar Fundamental Forecast
While the markets are speculating about what Donald Trump will be able to deliver on his campaign promises, I would put the question differently: can the US economy sustain the high growth rate it enjoyed in 2024? The economy’s resilience in 2022–2023, when the Fed implemented its most aggressive monetary restraint in decades, contributed to the US dollar’s position as the top performer among the most liquid Forex currencies.
A robust economy is inherently incompatible with a weak currency. The Atlanta Fed’s leading indicator for the fourth quarter signals a 3.1% expansion of US GDP. In comparison, Bloomberg experts do not foresee the European economy expanding by more than 1% in 2024. This discrepancy serves as a primary factor influencing the outlook for the EURUSD exchange rate, with the divergence favoring bears.
EU GDP Growth Forecast
Source: Bloomberg.
The divergence in economic growth is primarily driven by productivity, which has increased by 2% or more for five consecutive quarters in the US. The Congressional Budget Office (CBO) projects that the national debt will rise from 99% of GDP in 2024 to 116% in 2034 due to productivity growth of 1.1%. If productivity increases by 1.6%, the national debt will reach 108% of GDP within a decade.
In fact, the figure may be even lower, as productivity could surge to 2.5–3% due to the rapid advancements in the AI sector. Previous periods of significant productivity growth were marked by the development and introduction of jet engines in the 1960s, computers in the 1990s, and the Internet in the 2000s. The question arises: can AI be worse off than these previous technological leaps?
The potential for AI lies in its ability to boost productivity, which in turn can lead to increased budget spending and tax cuts, thereby accelerating GDP growth. This is the very objective that Donald Trump’s fiscal stimulus and deregulation aims to achieve. In 2024, the US economy acted as a headwind for the European economy, which in turn led to a nearly 6% decline in the EURUSD pair.
In 2025, the projected divergence in economic growth is likely to widen further. The surge in productivity in the US is propelled by robust investment, while in Europe, it will remain subdued due to the ongoing political crises in France and Germany.
US Labor Market Indicators
Source: Bloomberg.
The EURUSD pair’s journey towards parity and below might encounter some roadblocks. For instance, a rally in the US equity market, a surge in the new US jobless claims to 1.9 million, the highest level since 2018, and a 0.4 percentage point increase in China’s GDP forecasts to 4.5% in 2025 by the World Bank enabled the euro to rise above 1.04.
Weekly EURUSD Trading Plan
Despite the amount of economic stress, there will always be a resolution. The growing disparity in economic growth between the US and the eurozone amid fiscal stimulus and tariff policies implemented by Donald Trump, along with slower Fed rate cuts compared to the ECB, will likely drag the EURUSD pair to parity. Consequently, if bulls fail to breach the resistance level of 1.0425 or the price rebounds from the 1.047 and 1.051 levels, one may consider opening short trades on the major currency pair.
Price chart of EURUSD in real time mode
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteFinance. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.
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