EUR/USD holds positive ground above 1.0800, eyes on Eurozone inflation data, ECB’s Lagarde speech
- EUR/USD edges higher to near 1.0815 in Tuesday’s early European session.
- Investors will closely monitor the new round of reciprocal levies that the White House is due to announce on Wednesday.
- The concerns over the US economic growth and uncertain trade policy weigh on the US Dollar.
The EUR/USD pair gains momentum to around 1.0815 during the early European session on Tuesday. The Greenback weakens as the markets await clarity on reciprocal tariffs from US President Donald Trump on Wednesday.
Trump said late Monday that his reciprocal tariffs plan will target all other countries when it is unveiled Wednesday, adding more uncertainty to the much-anticipated trade policy just days before its implementation. Trump denied that the additional tariffs will target just the top 10 or 15 trade partners that have their own import duties on US goods.
Furthermore, the concerns over the economic slowdown in the US could drag the US Dollar (USD) lower and create a tailwind for the major pair in the near term. Nonetheless, the softening stance on tariffs from the Trump administration could soothe investors worried a global trade war will slow down the US economy, which could help limit the USD’s losses.
Richmond Fed President Tom Barkin said late Monday that the US central bank would need to have confidence that inflation will move down before cutting the interest rates again. New York Fed President John Williams noted that the policy is in a good position to navigate through uncertainties, despite potential risks of higher inflation. Swaps traders continued to price in about two quarter-point rate cuts this year, with the first seen coming in July, according to the CME FedWatch tool.
Traders will keep an eye on the preliminary reading of Harmonized Index of Consumer Prices (HICP) data for March from the Eurozone. Also, the European Central Bank (ECB) President Christine Lagarde is scheduled to speak later on Tuesday. On the US docket, the ISM Manufacturing PMI report for March will be released.
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.