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EUR/USD holds ground below 1.0900 ahead of US Retail Sales data

  • EUR/USD may find support from improving risk sentiment amid a potential ceasefire discussion between Trump and Putin this week.
  • The US Dollar remains steady as traders exercise caution before the upcoming Retail Sales data release.
  • The Euro strengthened after Germany agreed on a debt overhaul and a significant increase in state spending.

EUR/USD remains steady around 1.0880 during Asian trading hours, with the US Dollar (USD) holding firm ahead of Monday’s Retail Sales data release. However, the Greenback faced headwinds after the University of Michigan (UoM) reported a decline in its preliminary Consumer Sentiment Index for March on Friday, falling to 57.9—the lowest since November 2022—from the previous reading of 64.7. This figure also came in below the consensus estimate of 63.1.

Markets widely anticipate that the Federal Reserve (Fed) will maintain its current policy stance when it concludes its two-day meeting on Wednesday. According to the CME FedWatch tool, traders have priced in nearly a 75% probability of a quarter-point rate cut by June.

The EUR/USD pair could gain support from improving risk sentiment amid reports of a potential ceasefire discussion between US President Donald Trump and Russian President Vladimir Putin this week. Trump’s envoy, Steve Witkoff, stated on Sunday that he expects the two leaders to speak, adding that Putin “accepts the philosophy” of Trump’s ceasefire and peace terms, according to The Guardian. Last week, the US and Ukraine proposed a 30-day ceasefire to Russia, with Putin expressing support for the initiative.

The Euro (EUR) strengthened following news that Germany had reached an agreement on a debt overhaul and a substantial increase in state spending. Friedrich Merz, the incoming chancellor, secured a deal with the Green and Social Democrat parties on Friday, ahead of a crucial parliamentary vote on Tuesday to reform borrowing rules. If the proposal garners a two-thirds majority, the increased spending plan could provide a significant boost to the EUR/USD pair.

Meanwhile, European Central Bank (ECB) Vice President Luis de Guindos expressed concerns on Sunday, stating that President Trump's policies are generating greater economic uncertainty than during the COVID-19 crisis, according to Bloomberg. Guindos noted that the new US administration appears less inclined toward multilateralism, which fosters cooperation across jurisdictions to address global challenges—a shift that he described as a major source of instability.

Additionally, ECB Governing Council member and Banque de France Governor François Villeroy de Galhau emphasized the need for the Euro to play a more prominent role on the global stage. In an interview with La Tribune Dimanche over the weekend, Galhau called for the creation of a "powerful savings and investment union" to attract international investors to the Euro.

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.

Author

Akhtar Faruqui

Akhtar Faruqui is a Forex Analyst based in New Delhi, India. With a keen eye for market trends and a passion for dissecting complex financial dynamics, he is dedicated to delivering accurate and insightful Forex news and analysis.

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