Analysts at Brown Brothers Harriman (BBH) have issued a two-pronged warning on major currency pairs, highlighting both the euro’s vulnerability to further losses and the US Dollar Index’s (DXY) potential for additional gains. The euro, they say, is under mounting downside risk and could test the critical 1.1400 support level against the dollar, while the DXY is poised to extend its advance as US economic resilience contrasts sharply with sluggish growth elsewhere.
Euro under pressure – The single currency’s weakness stems from a widening policy gap between the Federal Reserve and the European Central Bank. Markets are pricing in a more aggressive ECB easing cycle to shore up a stagnating eurozone, while the Fed has signaled caution on rate cuts amid persistent US economic strength. Compounding the euro’s woes are contractionary manufacturing PMIs, cooling services activity, political uncertainty in France and Germany, and safe-haven demand for the dollar driven by geopolitical tensions.
From a technical standpoint, BBH flags the 1.1400 level as a crucial support zone for EUR/USD. A decisive break below it could open the door to 1.1200, a level last seen in late 2022. The pair has been confined to a narrowing range since early 2024, with resistance near 1.1100, and failure to hold the support would signal a bearish shift.
Dollar’s upside risks – The greenback’s firm tone is rooted in the US economy’s outperformance. Robust employment, resilient consumer spending, and a stabilizing manufacturing sector have consistently beaten forecasts, encouraging foreign capital inflows and allowing the Fed to maintain a relatively hawkish stance. This growth divergence – particularly versus a struggling Eurozone and a faltering Chinese recovery – acts as a powerful tailwind for the DXY, where the euro accounts for nearly 58% of the basket.
BBH stresses that market expectations for Fed rate cuts are the key variable. If US data continues to surprise on the upside, rate-cut probabilities will be repriced lower, widening the interest-rate differential in the dollar’s favour. The analysts conclude that until a clear catalyst narrows the global growth gap, the path of least resistance for the DXY is higher, with any sustained euro recovery requiring either a sharp US slowdown or a hawkish pivot from the ECB.
