EUR/USD gathers strength to near 1.0950 after Trump tariff announcement
- EUR/USD drifts higher to near 1.0950 in Thursday’s early European session, up 0.85% on the day.
- Trump said the EU will face a 20% under the new Trump policy.
- Traders await the US March ISM Services PMI report for fresh impetus, which is due later on Thursday.
The EUR/USD pair climbs to around 1.0950 during the early Asian session on Thursday. The Greenback edges lower against the Euro (EUR) after US President Donald Trump announced more aggressive-than-expected tariffs against US trading partners.
Trump plans to impose a 20% tariff on EU goods and higher duties on some of the country's biggest trading partners. The tariffs will take effect on April 9. The European Commission President, Ursula von der Leyen, on Thursday slammed Trump’s imposition of tariffs on EU goods and vowed to retaliate. Worries about the impact of an escalating global trade war and a slew of weaker-than-expected US data raise the fear of a sharp global economic slowdown in the US, which drags the USD lower broadly.
Fed Governor Adriana Kugler said on Wednesday that rising tariffs in the US could feed into more prolonged inflation than might be expected. Kugler said that she supported keeping the current interest rate steady as long as these upside risks to inflation continue. Traders await the US weekly Initial Jobless Claims, the final S&P Global Services PMI, and the ISM Services PMI. If the reports show stronger-than-expected outcomes, these could lift the USD and create a tailwind for EUR/USD.
Euro FAQs
The Euro is the currency for the 19 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.