EUR/USD hits long-term highs above 1.1600, boosted by a weak Dollar
- The Euro hits levels above 1.16 for the first time since November 2021.
- Renewed tariff fears and soft inflation data are weighing on the US Dollar.
- EUR/USD bulls are focusing on the year-to-date highs at 1.1575.
The EUR/USD keeps rallying further on Thursday, testing levels above 1.1600 for the first time since late 2021. A mix of fresh tariff threats by US President Donald Trump, higher hopes of Fed easing, and hawkish comments by ECB speakers are boosting the common currency against an ailing US Dollar.
The USD-supportive effect of the trade truce with China has been short-lived. Trump stirred markets again on Thursday, touting that he will impose unilateral tariffs on trade partners if they do not reach a trade deal before the July 9 deadline, Bloomberg reports.
Before that, the US Dollar was already on its back foot following the softer-than-expected US Consumer Price Index (CPI) data released on Wednesday, which increased expectations that the Federal Reserve (Fed) might cut interest rates in September.
Futures markets are pricing a nearly 60% chance of a 25-basis-points rate cut after the summer, up from 50% last week, according to data from the CME Fed Watch tool.
European Central Bank (ECB) officials, on the contrary, are reiterating the hawkish message conveyed by President Christine Lagarde after last week's meeting, highlighting a monetary policy divergence that is providing additional support to the Euro.
Euro PRICE Today
The table below shows the percentage change of Euro (EUR) against listed major currencies today. Euro was the strongest against the US Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.86% | -0.26% | -0.56% | -0.25% | -0.17% | -0.41% | -0.93% | |
| EUR | 0.86% | 0.60% | 0.30% | 0.61% | 0.67% | 0.46% | -0.04% | |
| GBP | 0.26% | -0.60% | -0.33% | 0.00% | 0.06% | -0.16% | -0.67% | |
| JPY | 0.56% | -0.30% | 0.33% | 0.31% | 0.38% | 0.11% | -0.36% | |
| CAD | 0.25% | -0.61% | -0.00% | -0.31% | 0.08% | -0.17% | -0.67% | |
| AUD | 0.17% | -0.67% | -0.06% | -0.38% | -0.08% | -0.22% | -0.72% | |
| NZD | 0.41% | -0.46% | 0.16% | -0.11% | 0.17% | 0.22% | -0.51% | |
| CHF | 0.93% | 0.04% | 0.67% | 0.36% | 0.67% | 0.72% | 0.51% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent EUR (base)/USD (quote).
Daily digest market movers: The “Sell America” returns in full strength
- US President Trump rattled markets, announcing early on Thursday that he will send letters to trading partners in the next days with the terms of a trade deal to avoid higher tariffs ahead of the deadline on July 9.
- The fragile trade truce between the US and China failed to support the US Dollar on Wednesday. The US Dollar index has dropped to fresh seven-week lows and is nearing April’s multi-year low at 97.95. The Euro is one of the largest beneficiaries of US Dollar weakness.
- Earlier on Thursday, ECB member Schnabel reaffirmed the view that the bank's monetary cycle is coming to an end as, she said, Eurozone's growth outlook is "broadly stable" with inflation stabilizing at the 2% target
- Also on Wednesday, US consumer prices rose by 0.1% in May and by 2.4% compared with the same month last year, below the market consensus of 0.2% and 2.5%, respectively. Core inflation fell to 0.1% in the month and remained steady at 2.8% year on year, also below the 0.3% and 2.9% respective figures anticipated by the market.
- A 10-year US Treasury Bond auction encountered strong demand on Wednesday, which eased fears about the US fiscal debt and provided some support to the US Dollar.
- The focus on Thursday will be on the US Producer Prices Index (PPI) to confirm the benign inflation pressures and increase hopes of a rate cut in September. The headline PPI is expected to have accelerated at a 0.2% monthly rate and 2.6% year-on-year from the -0.5% and 2.4% respective readings in April.
Technical analysis: EUR/USD pierces the 1.1575 level, 1.1600 is next
EUR/USD is rushing higher after breaching the top of the recent consolidation range. The pair has broken above the late April highs at 1.1570 and is testing the 1.1600 round level, where the 261.8% Fibonacci extension of the mentioned range lies.
The 4-Hour RSI is well into overbought territory, which suggests that a potential correction is likely. In the current context, however, dips are likely to find buyers. Supports are at 1.1495 (Jine 5 high) and the previous range top, at 1.1455.
On the upside, above 1.1600, the next target would be the 3618% Fibonacci extension, at 1.1685, but the pair is unlikely to reach these levels before some correction or a consolidation takes place.
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
Author
Guillermo Alcala
FXStreet
Graduated in Communication Sciences at the Universidad del Pais Vasco and Universiteit van Amsterdam, Guillermo has been working as financial news editor and copywriter in diverse Forex-related firms, like FXStreet and Kantox.
