- EUR/USD trades with mild gains near 1.0450 in Wednesday’s Asian session.
- Trump floated 25% tariffs on US auto, drug and chip imports.
- Eurozone ZEW Economic Sentiment Index jumped to 24.2 in February vs. 24.3 expected.
The EUR/USD pair posts modest gains to around 1.0450 during the Asian trading hours on Wednesday, bolstered by the weakening of the US Dollar (USD). However, tariff concerns and tense Russia-Ukraine negotiations might boost the Greenback, a safe-haven currency, and cap the upside for the major pair.
US President Donald Trump said late Tuesday that he would likely impose tariffs on automobile, semiconductor and pharmaceutical imports of around 25%, with an announcement coming as soon as April 2.
Ukraine President Volodymyr Zelenskiy said no peace deal could be made for the time being. He postponed his visit to Saudi Arabia planned for Wednesday until March 10 to avoid giving "legitimacy" to the US-Russia talks. The uncertainty, geopolitical tensions and tariff threats could lift the USD and act as a tailwind for the pair.
Investors await the release of the FOMC Minutes for the January meeting, which are due later on Wednesday. This report could offer some hints about how policymakers are weighing the risk of a global trade war.
Across the pond, the Eurozone ZEW Economic Sentiment Index came in at 24.2 in February versus 18.0 prior, missing the estimation. The rising bets that the European Central Bank (ECB) will further cut the interest rates three times this year might weigh on the Euro (EUR).
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.
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