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EUR/USD softens to near 1.0300 ahead of ECB’s Lagarde speech

  • EUR/USD trades in a negative territory near 1.0310 in Monday’s Asian session. 
  • The uncertainty and trade war threat underpin the US Dollar broadly. 
  • The dovish stance of the ECB and the signal of several interest rate cuts weigh on the shared currency. 

The EUR/USD pair drifts lower to around 1.0310 during the Asian session on Monday, pressured by the stronger Greenback. Later on Monday, the Eurozone Sentix Investor Confidence for February and the speech from the ECB's President Christine Lagarde will be in the spotlight. 

Trump said on Friday that he plans to announce reciprocal tariffs on many countries by Tuesday or Wednesday, without specifying which countries. The move adds to jitters over a global trade war, supporting the safe-haven currency like the US Dollar (USD). 

"The immediate concern, however, might not be inflation, as there could be counter effects such as demand slowdown. The bigger concern is the uncertainty and the shift towards a more protectionist world,” said Charu Chanana, chief investment strategist at Saxo. 

Across the pond, the rising speculation of more rate cuts from the European Central Bank (ECB) amid weak economic growth is likely to weigh on the Euro (EUR) against the USD. The ECB Governing Council member Boris Vujcic said that expectations for three more rate reductions this year are reasonable, even though it will take until the start of the second quarter to know with more certainty if they’ll materialize.

Traders will closely watch the developments surrounding tariff policies by US President Donald Trump, as he has repeatedly threatened against Europe. JPMorgan economist Nora Szentivanyi said "the motivation, objectives, timing, and tariff rates are all unclear.” Nonetheless, the European Commission noted that it would retaliate 'firmly' against any US-imposed tariffs.

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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Lallalit Srijandorn

Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.

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