EUR/USD retreats from two-week high as Trump tones down tariff threats

The Euro (EUR) weakens against the US Dollar (USD) on Friday, snapping a three-day winning streak as the Greenback finds renewed strength after US President Donald Trump softened his rhetoric on US-China trade tensions. At the time of writing, EUR/USD is trading around 1.1663, easing from two-week highs reached earlier in the day.

Meanwhile, the US Dollar Index (DXY), which tracks the Greenback’s performance against a basket of six major peers, is hovering around 98.50, rebounding from multi-day lows as risk sentiment steadies.

Trump said on Friday that his planned 100% tariffs on Chinese imports are “not sustainable,” while reiterating that the measures were a response to Beijing’s tightening of rare-earth export controls. He added that he expects to meet Chinese President Xi Jinping within the next two weeks, a comment that helped calm investors wary of an all-out trade confrontation. Separately, WTO chief Ngozi Okonjo-Iweala urged both sides to de-escalate, warning that prolonged tensions could shave up to 7% off global GDP over the long term.

While the Greenback is enjoying a short-term bounce, its momentum could fade as renewed regional banking turbulence adds another layer of uncertainty to the United States (US) economic outlook. At the same time, traders are now fully pricing in back-to-back 25 basis-point interest rate cuts by the Federal Reserve (Fed) at its October and December monetary policy meetings, according to CME FedWatch tool. Meanwhile, the prolonged US government shutdown, now entering its third week, continues to weigh on sentiment and raises concerns over broader fiscal uncertainty.

In the Eurozone, sentiment steadied after French Prime Minister Sébastien Lecornu narrowly survived two consecutive no-confidence votes on Thursday, easing immediate political uncertainty in the bloc’s second-largest economy.

Earlier in the day, Eurozone inflation data came broadly in line with expectations, showing little change in price pressures. The core HICP rose 0.1% MoM in September and 2.4% YoY, just above the 2.3% forecast. The headline HICP also increased 0.1% on the month and 2.2% annually, both matching forecasts and August’s readings.

Meanwhile, European Central Bank (ECB) officials maintained a cautious tone on Friday. ECB’s Sleijpen said that policy being “in a good place” does not mean it will stay there, noting that the economy has been more resilient than expected. ECB’s Nagel added that there is no need to act on interest rates for now.