EUR/USD tumbles as USD’s appeal strengthens on DeepSeek concerns.

EUR/USD falls sharply to near 1.0420 as the safe-haven appeal of the US Dollar has strengthened in a risk-off environment.
The Fed is expected to leave interest rates unchanged, while the ECB is set to cut them by 25 bps, both this week.
US Treasury Bessent proposes a 2.5% tariff hike universally, which will increase at the same pace every month.

EUR/USD tumbles to near 1.0420 in Tuesday’s North American session. The major currency pair weakens as the US Dollar (USD) strengthens amid a global sell-off in technology, power, and data center stocks, which has increased its safe-haven appeal. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, surges to near 108.00.

Investors are dumping technology stocks as Chinese DeepSeek’s low-cost Artificial Intelligence (AI) model has challenged the dominance of current AI players and their related entities across the globe.

Meanwhile, deepening uncertainty over US President Trump’s universal tariff plan and the Federal Reserve’s (Fed) monetary policy announcement on Wednesday has also strengthened the US Dollar. Soon after being selected as US Treasury Secretary, Scott Bessent proposed the plan of imposing a universal 2.5% tariff plan, which will increase gradually each month until reaching Trump’s guidance of 20%.

Market experts believe that the gradual introduction of tariffs will give more time for the US to negotiate harder and close better deals with their trading partners.

On the monetary policy front, the Fed is almost certain to leave interest rates unchanged in the range of 4.25%-4.50%. Therefore, investors will mainly focus on Fed Chair Jerome Powell’s press conference after the policy decision for fresh interest rate guidance. Analysts at Macquarie expect that Powell is unlikely to offer much in this regard other than emphasizing the “data dependence of future decisions” while highlighting “uncertainty about the neutral rate”.

In Tuesday’s session, the Durable Goods Orders contracted in December unexpectedly. The US Census Bureau reported that the Durable Goods Orders declined at a faster pace of 2.2%, compared to 2% in November, downwardly revised from 1.1%. Economists expected new orders for Durable Goods to have grown by 0.8%.