The global market is currently struggling to find balance in key currency pairs and stock instruments. This is particularly challenging given the recent decline of the euro and the weakness of the dollar. Adding to the pressure are relatively pessimistic forecasts for major global indices.
On Tuesday, March 18, the EUR/USD pair traded with slight losses around 1.0915. The euro remains under pressure due to a new round of trade tensions stemming from U.S. President Donald Trump's latest tariffs on European goods. However, experts believe the dollar's weakening—driven by concerns over a slowdown in the U.S. economy and hopes for a fiscal deal in Germany—could limit the downside for EUR/USD.
Analysts suggest that further declines in EUR/USD may be prevented by actions taken by Germany's Green Party, which is currently working on a debt restructuring deal. Friedrich Merz, a candidate for German chancellor, recently approved the creation of a €500 billion infrastructure fund and agreed to significant changes in borrowing rules, particularly regarding the so-called "debt brake." These measures are expected to support the euro soon and help it withstand pressure from the dollar.
Adding fuel to the fire, weaker-than-expected U.S. retail sales reports have heightened concerns about slowing consumer spending. This has put pressure on the dollar and supported EUR/USD. According to recent data, U.S. retail sales rose by 0.2% month-over-month in February, falling short of the expected 0.7% increase. On a year-over-year basis, retail sales grew by 3.1%, down from the previously reported 3.9% (revised from 4.2%).
The situation has become even more complicated due to widespread downgrades in forecasts for U.S. stocks. Currency strategists at RBC Capital Markets have joined other experts in lowering their outlook for the U.S. stock market in 2025, citing worsening economic prospects, a potential slowdown in economic growth, and increased uncertainty from trade wars.
Against this backdrop, RBC Capital Markets has revised its S&P 500 forecast for next year, now expecting the index to reach 6,200 points—a 4% reduction from the previous forecast of 6,600 points. Additionally, the firm has cut its earnings-per-share forecast by 2.5%, citing deteriorating economic conditions.
Last week, the S&P 500 fell 10% from its all-time high reached in February 2025, which experts believe signals the start of a market correction. RBC Capital Markets strategists have warned that slowing economic growth could pose a serious obstacle for the stock market. Consumer, small business, and corporate sentiment have turned increasingly negative, while support from President Donald Trump has diminished. Moreover, RBC strategists have lowered their year-end forecast for the S&P 500, expecting it to drop from 5,775 points to 5,550 points.
The performance of U.S. stocks contrasts with European markets, though negative trends are present there as well. The Euro Stoxx 50 index has risen by nearly 10%, driven by hopes for a peaceful resolution to the Russia-Ukraine conflict, lower interest rates, and signs that the European economy has reached its bottom.
Across the Atlantic, the situation remains uncertain. David Kostin, Chief U.S. Equity Strategist at Goldman Sachs Group Inc., and other analysts have lowered the annual earnings growth forecast from 11% to 9%. He now expects the S&P 500 to finish the year at 6,200 points, down from the previous forecast of 6,500 points.
Deutsche Bank AG shares a similar view. The bank's analysts predict further declines in the U.S. stock market as optimistic sentiment deteriorates due to trade policy uncertainty. However, Deutsche Bank has maintained its long-term forecast for the S&P 500 at 7,000 points by the end of 2025.
Other currency strategists are also concerned about growing uncertainty in global markets. Analysts at JPMorgan Chase & Co. highlight potential risks associated with political developments. However, amid the wave of pessimistic forecasts, there is a glimmer of optimism. Michael Wilson from Morgan Stanley expects the S&P 500 to drop to 5,500 points only in the first half of 2025 before recovering. He believes this could lay the groundwork for a market rebound later in the year.
