- EUR/USD strengthens ahead of PMI data releases from the Eurozone, Germany, and the United States.
- The US Dollar struggles as Trump's trade policies fuel concerns over a potential economic slowdown.
- The Euro gains support from improved risk sentiment as the White House adjusts its tariff strategy before the April 2 rollout.
EUR/USD pauses its three-day decline, trading around 1.0840 during Asian hours on Monday. The pair gains as concerns over a US economic slowdown, driven by trade policies under President Donald Trump, weigh on the US Dollar (USD). Investors are now focused on the preliminary March Purchasing Managers Index (PMI) data for the Eurozone, Germany, and the United States (US), set for release later in the day.
The EUR/USD pair also benefits from improved risk sentiment as the White House revises its tariff strategy before the April 2 implementation. According to the Wall Street Journal, the administration is expected to drop some industry-specific tariffs while imposing reciprocal tariffs on countries with strong trade ties to the US.
Additionally, geopolitical tensions ease following talks between Ukrainian and US officials in Riyadh on Sunday. Efforts to broker a ceasefire continue, with President Trump advocating for an end to the three-year war. Ukrainian Defense Minister Rustem Umerov discussed measures to safeguard energy and critical infrastructure, while US and Russian delegates are set for separate talks on Monday, according to Bloomberg.
However, the Euro (EUR) faces headwinds amid concerns that Trump’s reciprocal tariffs could significantly hinder the Eurozone’s economic growth. Last week, European Central Bank (ECB) President Christine Lagarde cautioned about downside risks stemming from the Trump-led trade dispute while downplaying fears of persistently high Eurozone inflation.
Adding to the uncertainty, ECB Vice President Luis de Guindos told The Sunday Times that President Trump’s policies are creating more economic instability than during the COVID-19 crisis. Similarly, Jose Luis Escriva stated on Bloomberg TV on Friday that inflation and economic growth forecasts face significant risks in both directions, making future interest rate decisions highly unpredictable.
Germany, one of the US's key trading partners, is expected to bear the brunt of Trump’s reciprocal tariffs. While the US currently imposes a 2.5% tariff on German car imports compared to the Eurozone’s 10% duty, Trump has threatened to introduce a 25% tariff on foreign automobiles. Germany’s Bundestag lower house of parliament has approved measures to expand borrowing limits, injecting billions of Euros into the economy, which may cushion against potential US tariff impacts.
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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