EUR/USD treads water above 1.1600 amid US-China trade tensions, government shutdown

EUR/USD may regain its ground as the US Dollar weakens amid renewed US-China trade tensions.
President Trump announced plans to raise 100% tariffs on Chinese imports.
The Euro gains support as France’s political tensions ease and President Macron prepares to appoint a new prime minister.

Akhtar Faruqui FXStreet

EUR/USD steadies after registering nearly 0.5% gains in the previous session, trading around 1.1620 during the Asian hours on Monday. However, the pair may further appreciate as the US Dollar (USD) could continue to struggle amid escalating trade tensions between the world’s two largest economies, the United States (US) and China, along with the ongoing US government shutdown.

US President Trump commented on Friday that there was no reason to meet with China’s President Xi Jinping during the upcoming summit in South Korea in two weeks. Trump also announced plans to impose 100% tariffs on Chinese imports. In response, China warned that it will retaliate if Trump fails to back down on his threat to impose 100% tariffs on Chinese imports, raising fears of how the trade war will impact the US economy.

The first US Federal paychecks for October were expected on Friday but were delayed due to the government shutdown. The disruption is expected to continue at least until Tuesday, as the United States observes the Columbus Day holiday on Monday, with no resolution to the shutdown yet in sight.

The EUR/USD pair also draws support as the Euro (EUR) gains ground amid easing political tensions in France, where President Emmanuel Macron is set to appoint a new prime minister after Sebastien Lecornu’s resignation. Investors’ sentiment improved as Lecornu indicated that dissolving parliament and thus holding snap elections was unlikely.

The European Central Bank’s (ECB) September meeting accounts showed that policymakers broadly agreed the current policy stance remains consistent with the 2% medium-term inflation target. ECB members concurred that current interest rates are sufficiently strong to handle potential shocks amid two-sided inflation risks.

Euro FAQs

What is the Euro?

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%).

What is the ECB and how does it impact the Euro?

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.

How does inflation data impact the value of the Euro?

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.

How does economic data influence the value of the Euro?

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.

How does the Trade Balance impact the Euro?

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.

Author

Akhtar Faruqui

FXStreet

Akhtar Faruqui is a Forex Analyst based in New Delhi, India. With a keen eye for market trends and a passion for dissecting complex financial dynamics, he is dedicated to delivering accurate and insightful Forex news and analysis.

GBP/USD advances to three-month peak beyond 1.3600

GBP/USD extends its daily rally and trades at its highest level since mid-May above 1.3600. The US Treasury Department decision to double the sice of liquidity support buyback operations for longer-dated nominal coupon securitiez weighs heavily on the US Dollar and helps the pair push higher. Earlier in the day, the data from the UK showed that annual Consumer Price Index (CPI) inflation picked up to 2.9% in July, meeting estimates, while core CPI rose by 2.6% YoY in July versus 2.5% expected.

EUR/USD surges to 11-week high above 1.1650 after US Treasury announcement

EUR/USD gathers bullish momentum and trades at its highest level since early June above 1.1650 on Wednesday. The US Dollar stays under heavy bearish pressure after the US Treasury announced that it will increase the size of liquidity support buyback operations for longer-dated nominal coupon securities. Later in the day, investors will scrutinize FOMC Minutes for fresh clues on policy outlook.

200-day SMA briefly reclaimed, but Gold pulls back before the next leg north

Gold is struggling around the $4,500 level in Asia on Thursday after reaching the highest level in 11 weeks at $4,528 in early dealings. Gold refreshed two-month highs above $4,500 as Asian traders returned to their desks and reacted positively to the United States Treasury’s rescue plan announced on Wednesday, after longer-dated Treasury yields shot through the roof and roiled the bond markets.

HYPE soars 20% as Trump signals efforts to bring Hyperliquid to US market in White House meeting

Hyperliquid surged over 20% on Wednesday after President Donald Trump said the Commodity Futures Trading Commission is working to bring the decentralized perpetual futures platform into the US.

$20 billion offered, $2 billion taken: Why Treasury doubled its buyback cap

The US Treasury moved off its own calendar on Wednesday, and that is the part worth sitting with. At 12:32 GMT, the department said it would at least double the size of liquidity support buyback operations in the 10-year to 20-year and 20-year to 30-year sectors, lifting the maximum from $2 billion per operation to at least $4 billion, effective September 9 and running to November 4.

Why is Crude Oil priced for a reopening the ships haven't made?

Fourteen vessels crossed the Strait of Hormuz on Tuesday. Before the war, the count ran near 120 a day. In the sessions since the waterway was publicly declared open, Brent has drifted back to $87 and West Texas Intermediate (WTI) to $81, both a little lower again on Wednesday, with daily momentum on each unwound from the top of its range in late July to the low twenties now.