EUR/USD gains traction to near 1.1800 as tariff uncertainty weighs on US Dollar
- EUR/USD gains ground to near 1.1795 in Tuesday’s early Asian session.
- EU may freeze US trade deal approval on Trump tariff threats.
- ECB’s Lagarde said the central bank must be agile when setting interest rates.
The EUR/USD pair holds positive ground around 1.1795 during the early Asian session on Tuesday. The US Dollar (USD) weakens against the Euro (EUR) amid US tariff uncertainty. The release of the US January Producer Price Index (PPI) report will be in the spotlight later on Friday.
The US Supreme Court’s ruling on Friday struck down many of the tariffs that US President Donald Trump put in place. However, Trump shows no sign of backing down from his signature economic policy. The administration said it plans to impose a new 15% tariff on Saturday.
The European Parliament’s trade chief stated that the European Union (EU) will propose freezing the ratification process of the trade deal with the US until it receives details from Trump on its trade policy. Fresh uncertainty in US trade deals exerts some selling pressure on the Greenback and creates a tailwind for the major pair.
The European Central Bank (ECB) President Christine Lagarde said on Monday that the central bank must be “agile” in setting monetary policy, despite currently being well-positioned. Lagarde reiterated that policymakers will set interest rates “meeting by meeting, and emphasized the balance of risks as “broadly balanced.”
The US PPI data will take center stage on Friday, as it might offer some hints about the US interest rate path. Economists anticipate a moderation in PPI inflation in January compared to the previous month. However, if the report shows hotter than expected outcomes, this could provide some support to the Greenback in the near term.
(This story was corrected on February 23 at 00:50 GMT to say, in the first bullet point, that EUR/USD gains ground to near 1.1795 in Tuesday’s early Asian session, not Monday).
Euro FAQs
The Euro is the currency for the 20 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.
Author
Lallalit Srijandorn
FXStreet
Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.
